This trade was more instinctive than my usual trades. I'm trying to trust my instinct more. AMAT looked very weak relative to the market and it had been testing the 10 level repeatedly over the last week. Looking back it was a 3 pivot point B&B entry. This was a 2.32R trade.Setup:70
I was actually looking at going long at the break of 10.5 yesterday in AMAT when I realized this is one of those setups that isn't quite right and is more likely to fail. The volume contraction is there but the bars aren't very narrow range, and it looks overextended. I'm always looking for a strategy that works well in choppy, rangebound conditions and trading failed breakouts is one contender. This could work well because it doesn't require a complete shift in thinking. I'm always looking for breakouts anyway, so if I find a weak setup, I can take the opposite side of the trade.
This was a breakeven trade. USO was looking very weak and I liked how it was testing 33 for the third time. Oil will often make a big move around 2:00-2:30 at the end of open outcry trading. There were also narrow range bars at the ORL in the indexes. Oil and the indexes were both setting up so I was looking for a stock that would move with oil. I chose POT since materials was one of the weakest sectors of the day and MOS and CF had already gone to new lows. I liked the rounded top look. Unfortunately, POT didn't move as much as oil and I was quick to move my stop to break even due to the choppy conditions so I got stopped out on a retrace.
This has not been a good month for me. The last two months I broke even so I was beginning to doubt whether I could make money in this high volatility, increasingly unpredictable market. I overtraded the first week of December. The setups I was taking actually were fairly good, but everything I touch isn't working right now. Either I'm off or the market is off, either way I need to stop for a while and preserve my capital. I've learned that one of the paradoxes to trading is that the harder it is, the less rewarding it is.
My first two trades using my simplified BOR technique have failed so of course I feel like abandoning it. Today seemed like a good day for this type of entry with the European markets up about 7.5%, relatively good news in the morning, and a gap up followed by a shallow retrace. I thought it was impressive that buyers stepped in at the ORL instead of the gap filling more. But buyers vanished and I got stopped out. The one warning sign was that the TICK was mostly negative. There were a couple of volume spikes in the QQQQs, when AAPL was bouncing off 100. Since there was a breakout I had tightened my stop for only a .46R loss.
This was a frustrating failed trade. This was a good setup for several reasons. There is a descending triangle formation with a series of lower highs on the 15 minute chart. It also has a cup and handle look. This was the third time the 92.5 level was being tested. You can see the nice breakout bar on the 5 minute chart after a mini bear flag. The tape was looking really good at the time of the breakout. My stop was pretty tight so I got stopped out when the indexes bounced off of the ORL, then everything proceeded to plummet. The most frustrating trades are the ones where you do everything right, you have a lot of confidence in the setup and it still doesn't work out. It's easier to take a loss on a bad setup.
Today was a tricky day. It was far more bullish than I was expecting. It's like yesterday never happened. My new BOR technique would have worked nicely today but I wasn't expecting such a strong move. Then after the big initial move, I wasn't really expecting much continuation so that left shorting (or a better option probably--not trading). I almost didn't post this trade but I saw that Tyler at "Am I Bald" made the same trade. It really wasn't a bad setup, narrow range bars with volume contraction with the 5 period MA directly above. On the daily chart, RIMM is breaking out of a descending triangle. I also liked the big volume and thought that it could be immune to the overall market. RIMM hardly budged when the market made it's big move in the morning. In the end, I think today was more about the market reacting to all the GM bailout talk than supply and demand.
I traded this as a pennant. The one thing I didn't like about the setup was the lack of volume contraction, but I liked how weak CF was compared to POT and MOS. At 11:15, USO put in a huge capitulation bar on high volume while CF didn't budge. That really bothered me and I didn't want to sit through a choppy lunch, so I tightened my stop to break even and got stopped out. 
With options expiration today and the VIX above 70, I was only going to trade pristine setups. This setup looks even better now than it did realtime, but two things that would have made it even better would be more price contraction on the third bar and if it were fully inside of the second. I was also looking at trading the ABX symmetrical triangle but it broke out too quick and I usually don't trade before 10:15. Looking back over this week I was probably a little too picky in choosing setups. There were many potential setups that were less than perfect that ended up working out.
I had to choose between this descending triangle or a DRYS bear flag. In retrospect, I wish I went with DRYS, but I liked how STP broke the $10 level and was under yesterday's lows. It broke down pretty nicely, especially when it got below the 9.50 level. Then oil started going up and the market started getting real choppy midday. I thought STP would get to 9 quicker but it had a lot of trouble with the 9.20 area, so I tightened my stop to break even. STP was showing too much relative strength. It finally broke down at the end of the day and after hours.
Today was a good day to be trading. There were many stocks that made nice linear moves down just like this one. The nearest support level on the S&P was 900, and the index moved down there like being drawn to a magnet. After seeing the European and Asian markets down around 7%, there wasn't any doubt that I wanted to be short. I entered on the break of the ORL. You can see the two narrow range bars with the 5 period SMA directly above the NR7. The only thing that bothered me was that the NR7 had slightly more volume than the previous bar. This was a 2.6R trade. I exited for the following reasons:
I noticed today that the volume was more evenly distributed throughout the day which is an anomaly. Normally, there is greater volume in the morning and afternoon, with an inverted bell shape. I'm guessing that this is a sign of mutual fund redemptions or hedge fund liquidation.
Missed it by that much. I traded this as a bull flag. The setup was a little messy but I liked the volume contraction on the narrowest, 4th bar. It was very slow to break out while oil and all the other commodity stocks were plunging. FWLT was holding up at 30.3, there must have been a large buy order there. I tightened my stop since it was showing too much relative strength. I got stopped out to the penny, before the stock made it's move down. Frustrating, but I don't think I would have played it differently. I might still be in scalp mode after last month.
This was a really nice setup for several reasons. The US dollar was down big today, ABX and GDX had a nice daily chart, ABX showing nice volume contraction in a bull flag, and GDX had nice volume contraction before the breakout. My only reservation was that the 5 period moving average was too far away on the 15 minute chart. If I had been looking at the 5 minute chart I would have been quicker to take the trade.If you ask me, trading hasn't been the same since the short sell ban on financials. Stocks used to move smoother when arbitrage strategies were being used by the hedge funds. The five minute charts have become increasingly choppy, so I've started relying more on the 15 minute. The following quote describes exactly what I think is going on:
"Analysts said the low volumes could be attributed to the absence of many traders, particularly statistical arbitrage players who would ordinarily be responsible for significant volume on a daily basis.
Dan Mathisson, head of Advanced Execution Services, Credit Suisse’s algorithmic trading platform, says that when the short selling ban came into force in the US in mid-September, hedge funds “turned off their long/short algos, volatility began to spike and bid/ask spreads widened”.
“If you take algos out, you enhance volatility. A lot of people don’t understand that yet. It’s tied to the hedge funds reducing their trading and exiting the market, leaving the market much more exposed to volatility,” he says."
The link between oil and our markets appears to be strengthening. I would guess that the short term rally in the dollar was starting to hurt us in the U.S. Exports were the one bright spot in our economy. I haven't been trading as much lately. There are definitely opportunities out there, but I think this market calls for more instinctive trading. I'm still looking for picture perfect setups and there haven't been as many of those lately. We get these sharp moves that seem to come out of nowhere. I'm at break even this month. To those who are doing well this month, congratulations! If you can trade this market, I think you can trade any market.
I traded STP as a bearish pennant. You can see the nice volume contraction and the three inverted hammers in a row. Oil was starting to move down after gapping up, XLF was setting up an inverted cup and handle, and the Nasdaq started making new lows. I thought seriously about exiting at 21, but I ended up getting out at 21.18 for a 1.38R trade. Once USO hit support at 59, the whole market turned back around along with oil. I've pointed out before how the market is moving directly with oil now instead of inversely and this continues to be the case.
This was my fastest profitable trade so far. 2.79R in 10 minutes is not bad. I traded this as a bear flag shorting at 104 and covering at 101.21 (initial stop at 105). The setup wasn't extremely clean but there was volume contraction and I liked how it was close to the 100 psychological support level. I think of major support and resistance levels as exhibiting gravity--they will often suck price down to its level. POT took a stab at hitting 100, but then the tape slowed, so I exited. In better conditions I might have been more patient, but with the choppiness I was quick to take profits. With the huge volume POT was seeeing today, the orders executed in about .2 seconds.
This was actually a pretty decent setup that just didn't work out. This was a base and break, and you can see the volume contraction before the breakout, the breakout occured on increasing volume and then proceeded to do a 180. This setup would have been stronger if the peak before the breakout was even lower then the previous peak. Also, the time of day was not ideal and the day was very choppy until the late day breakdown.
I traded this as a bear flag / short term double top. Whenever I find myself trading the same stock several times in a row, I make sure that I'm not treating the stock as a good luck charm. This was a half decent setup but the one thing I didn't like about it was the volume spike early on indicating that most of the people who wanted to sell probably did so on that bar. But I liked the short term double top look, and I still thought there was a good chance it would retest the ORL. Once DRYS couldn't break 23, not even by a penny, I started thinking about exiting. When USO moved down from 73 to 72 like I was expecting, and other oil sensitive stocks moved in sympathy, and DRYS held firm, I exited. 
I really liked this trade. It ended up being break even, but the setup was good, and if I saw the same setup again I would make the same trade. There were several things that I liked about this trade:
This was an ok trade considering today's chop. I felt like commodities and oil were going to take a breather today (backed up by their charts of course). The breakout of the inverted C&H was fast and furious, but then it slowed. Once I saw the ascending triangle shaping up, I set a stop at 47.2 in case DRYS broke out of that pattern. It did break and dealt me some slippage. In retrospect I should have just exited the trade when I spotted the pattern but I was encouraged by how linearly POT and USO were moving down. I'm starting to rate my trades from a scale of 1 to 100. I've seen traders use a lettering scheme (i.e. A-, B+), but I think in numbers and this will let me calculate an average setup figure each month to indicate how selective I have been.
I've mentioned before that I like to have several reasons to exit a trade. I also like to have several reasons to enter a trade. When I see a setup taking form, I try to gather evidence that the overall market is going to trend in the direction of the trade. Tuesday was nice because there was no question I wanted to be short after the second day in a row of the S&P bouncing off of the 50 day MA and the tepid reaction in the US to the Frannie bailout. In the middle of the day, XLF was setting up an inverted cup and handle and the QQQQs looked to be forming a short term double top. I also look at similar stocks in the same sector. I liked how DRYS didn't bounce off it's morning low as much as stocks in related sectors like POT, showing relative weakness. You can also see how little volume there is in the bear flag, and that the volume is declining. I try to put the odds in my favor as much as possible. This also gives you more confidence to stay with the trade. I exited this trade as the Nasdaq was hitting the previous day's low, DRYS was nearing 50 (strong support), the dojis were showing high volume (sign of covering?), and I was starting to see green on the tape. It's not every day I nail the exit, so I was happy with this 4R trade.
This graph shows how oil has moved more in step with the market over the last few days. Notice how today, oil formed a bit of a double bottom right before the Nazdaq did the same. Normally, oil has an inverse relationship with the market. I can explain this in a few different ways. One explanation could be that the employment report last week and the Fannie and Freddie bailout (not a backstop any more) far outweighs the daily fluctuations of oil. Another explanation is that the sentiment about oil prices could be changing. Normally, lower oil means the consumer will have more discretionary income which is a postive for an economy based largely on consumer spending. But the biggest fear lately is that we are going to experience a worldwide recession, not just a U.S. slowdown. So lower oil might now remind traders of slowing global demand, which will have more impact in the long term. The third explanation is that all of this is just a coincidence. I'll be watching this over the next week to see if this new relationship continues.
After 3 months of watching breakouts fizzle, I became very quick to take profits. Wednesday morning was very choppy so I was in quick profit taking mode. I saw that DRYS was slowing at 65.5, and my 3R target was 65.4. The one thing I failed to recognize was the Head & Shoulders pattern in the indexes. So instead of 7R I got 2.2R. Now that the volume has returned to the market I will have to be slower to take profits, and expect stocks to run a little further. I still haven't come up with a formal exit strategy, but I have several ideas in mind.
I liked my entry on this inverted cup and handle. Obviously, the exit could have been better. My 3R target was 169, but the whole morning was trending and very pessimistic after the personal income data and Dell gapping down, so I just tightened my stop to 170.2. I didn't notice the second cup and handle at 170 in real time, which would have made me quicker to exit at 169 due to the shallowness of the cup. But I got 1.81R out of this, and ended the month on a good note. I've noticed that Friday's trade much differently then any other day. It appears that many traders like to take a half day. Usually traders go out to lunch around 12, so they start covering at 11:54ish. On Friday's, there isn't mass closing of positions until 12:30-1.
I traded WB as a double top. I was pretty confident that it was going to break down at least to the 15 level. That level proved strong though and it took some time to break through. After it broke through I wasn't convinced it was a clean break so I tightened my stop to 15.06 for a .91R win. If 15 was broken it should have served as resistance, preventing WB from hitting my stop. The market action has been underwhelming Wednesday and Friday (low volume) so I've been quicker to tighten my stops to protect profits.
This was a nice 3.4R trade. Notice the heavy volume contraction and NRIBs after the big move down in the morning. Oil was coming down, even with all the Russian news and commodities tend to move with oil and inversely to the dollar. You can't kick yourself for not being omniscient. In retrospect, you always could have done something different to make a trade even better and it often feels like you're leaving money on the table. I exited because it looked like oils decline was slowing and possibly putting in a bottom. I was right but it took over an hour for oil to consolidate and eventually reverse.
