Trading Tips

Various tips and ideas for regarding trading and investing such as placing orders, using stops, etc… These tips are included within the content of the posts listed below.

Apr 112014
 

Just to elaborate on my previous market comments, any bounce that may or may not materialize around the current support level on the Nasdaq 100 is expected to be a counter-trend rally in what I still believe to be the early stages of a much larger downtrend. Today the $NDX hit the first of four downside profit targets that have been listed on the $NDX live daily chart for some time now. My expectation at this time, which could change depending on how the charts play out going forward, is that before all is said & done, the $NDX will have fallen to my 4th & final (at this time) target which comes in around the 3150 level or the primary uptrend line on that chart, whichever comes first. That could take as long as several months or a short as several days, should the nearby support levels give way quickly.

With that being said, in order to most effectively utilize the trade ideas on RSOTC one must align the entries & exits of those trades with their own unique trading style and typical time frame. For example, very active, short-term traders like myself might opt to micro-manage a swing trade listing multiple price targets by booking profits as the earlier targets are hit (assuming the short-term charts confirm that a bounce is likely) while re-entering the position on the bounce with the intention of swinging the trade down to the final target(s). A less active, longer-term swing or trend trade might opt to ride out any short-term counter-trend bounces in the position with the intent of holding out for the 3rd or 4th target.

The bottom line is that trying to time all the minor swings in the market is not always easy and typically something best attempted by more seasoned traders. Those traders or investors that are longer-term bullish at this time should focus on initiating or adding to positions on pullbacks to support or breakouts of bullish chart patterns. For example, I’ve recently highlighted how well the 40-week EMA has defined major bull and bear trends in AAPL (Apple Inc.). After breaking down from the recently highlighted symmetrical triangle pattern on the daily chart, AAPL has now fallen to the 40-week EMA (which is the same as the 200 EMA on the daily chart), thereby offering an objective long entry, again for those who believe that the current correction has most likely run it’s course.  Those with a longer-term bearish view could wait for a solid weekly close or two below the 40-week EMA in order to establish a swing short position on the stock.

AAPL weekly April 11th

AAPL weekly April 11th

Again, we may or may not get a tradable bounce in the $NDX from this current support level and as such, I plan to update some of the trade ideas that still offer an objective entry for those looking to add any long or short exposure at this time. As I might be updating a number of trade ideas today, email notification may not be sent out on each update so best to check the site throughout the day or over the weekend if looking for any trade ideas at this time. On a final note, for the most part, I try to avoid establishing any new positions on a Friday, especially towards the end of the day due to the extra overnight risk associated with weekends. Based on all the volatility lately, chances are that the market is going to gap one way or the other on Monday and that gap could be sizable.

Apr 112014
 

When trading individual stocks (usually my preference over trading the broad market such as SPY, ES mini-futures, etc..), I will typically align or modify my profit targets with the broad market. For example, I’ll use the EVR Active Short Trade as an actual example.  EVR was posted as a short entry at a price of 54.89 on April 3rd, listing two profit targets on the trade (T1 & T2). Although T2 remains my final swing target at this time, I have decided to book full profits on my EVR short at a price slightly above my first target of 48.75.  EVR hit a low of 48.79, just 4 cents above my target but being that the $NDX/QQQ, which I consider the leading index at this time and as such, I am putting a heavier weighting into my analysis than the $SPX/SPY, has hit my final near-term (60-120 minute) and first daily targets and as such, is likely to bounce, I have opted to reduce my overall short exposure.  In doing so, I look for my existing trades that have hit or are near a price target and then make a determination on whether to book partial or even full profits or to let the position continue to ride.

That decision is based on various factors including the technical posture of each position but a big weighting in my decision is what my expectations for the broad markets are. As stated earlier, the odds for a meaningful bounce are elevated at this time and as such, if a position, such as EVR has not yet hit the price target that I was focusing on when I entered the trade but is close enough, I may opt to book profits a little early as a bounce in the broad markets, i.e., a rising tide, is likely to lift all ships.  Even if my take on the broad market is wrong and prices continue to fall sharply below current levels, trading is all about weighing the potential risk vs. the potential reward. I’d rather not risk giving back some nice gains by holding out for higher profits with the markets becoming oversold on the near & intermediate-term time frames while at resistance with potential bullish divergences forming. To me, remaining aggressively short here does not offer a very favorable R/R.

EVR daily April 11th

EVR daily April 11th

On a final note, as the possibility that the markets do manage to slice through support and continue to move toward my additional downside targets, I have opted to place relatively tight trailing stop loss orders on many of my other short positions (vs. closing out the trades). The advantage of relatively tight trailing stops is that it allows you to “let your winners run” while also helping to lock in most of your profits, should the trade start moving against you.

Again, the decision to book profits or let a trade ride with stops in place is dependent on various factors such as my preferred target and the individual charts of each position. The most important thing when trading is to have a plan in place. This holds especially true when shorting as stocks usually fall much faster than they rise. I find that being flexible in your plan as far as booking profits earlier or even extending your price targets, depending on how the bigger picture (broad markets) is developing. The markets (charts) are dynamic, not static, and as such, a trader must constantly review & revise his/her game plan.

Apr 102014
 

When I was in my early 20’s, I found myself at the blackjack table while vacationing in the Bahamas. Never having played the game but chock full of liquid courage, I was blissfully ignorant of the fact that I was rapidly hemorrhaging cash, losing many more hands than I was winning. However, before my losses got to the point of doing any major damage, I received a bit of advice from an unexpected & surprising source.

After playing numerous hands without hardly a word spoken from the dealer, suddenly he muttered something indiscernible under his breath. Continue reading »

Apr 082014
 

I received a couple of questions regarding the previously posted potential bear flag/bearish pennant formation on GDX and figured that they were worth passing along.

Q1:  I see the pattern you mentioned in your post. However, can it possibly be an ascending triangle (spanning over the last 10 days) with a target of $26 ? I am new to technical analysis and would appreciate if you could point out the flaw in my view.

A:  Yes, GDX could also be in the latter stages of an ascending triangle pattern if one were to use that 24.75 horizontal resistance line as the upper boundary of the pattern. However, ascending triangle patterns are typically bullish continuation patterns meaning that the pattern is formed immediately following a distinct uptrend. I will say, though, that I have seen both ascending & descending triangle patterns (the latter being a bearish continuation pattern) break in the opposite direction and when this happens, it often leads to a pretty powerful move. Maybe that’s because the majority of traders watching the pattern were caught off guard while positioned for a break in the expected direction (continuation of the prior trend).

Q2: Also did you actually mean $23.50 area target instead of $20.50 as mentioned in your post.

A: No. As ugly as that sounds, the measured target for the bearish pennant/flag pattern posted earlier would be around 20.00-20.50. To determine the target on a bearish pennant or bear flag pattern (both similar patterns & both are also continuation patterns) you simply take the distance of the flagpole and subtract it from the top of the last tag of the uppermost trendline. Keep in mind that there’s no need to pull out your calculator. I usually just draw a trendline marking the flagpole, then drag that trendline and place it on the correct point of the flag or pennant. In fact, the chart that I posted earlier & the one below are using log scaling. To get a more accurate pattern projection when using the trendline drap & drop method, arithmetic scaling is more accurate (giving a measure target of 20.00 on GDX right now, assuming that prices don’t move any higher within the pattern).  After identifying the measured target of the pattern, I like to align that “rough” target with the nearest horizontal support (or resistance) level and/or any key Fibonacci retracement levels to zero in on my own preferred target (which I have not done yet & only plan to do if & when the pattern breaks to the downside).

One a final note, the reason that I reduced exposure to the mining sector on the gap up today was exactly because of the conflicting or ambiguous technical posture of GDX at this time. If I can’t make a solid case to be long or short a position, then it’s only prudent to book some of all of the profits on that trade. I’d rather give it a couple of days to see how this current consolidation on the mining sector resolves itself and not risk getting caught on the wrong side of a sudden breakout from this trading range.

GDX bear flag scenario April 8th

GDX bear flag scenario April 8th

GDX ascending triangle scenario April 8th

GDX ascending triangle scenario April 8th

 

Jan 292014
 

In order to keep RSOTC streamlined & efficient, as well as focusing my efforts on finding new trade ideas and updating existing trades, I made the decision not to have an open discussion forum on the site.  That may change in the near future as I will have more time to engage in dialogue within a forum once I’m finished building out the site, which should be soon.  Until then, I have always and continue to welcome comments, feedback & questions via the contact page (found under the Resources tab).  I’m usually able to reply within 24 hours, often sooner (other than weekends).  From time to time I will share a reply to a question that might have some value to others.  Today someone gave me a heads up that CMG reports earnings after the bell on Thursday & pointed out the history of large gaps in either direction on CMG following many of their past earnings releases.  As this is an important topic for swing traders (to close or hold a position into earnings), I figured that I would share my thoughts on the issue by pasting my response below. Continue reading »

Jan 282014
 

The ABG (Asbury Automotive) Active Short Trade has hit the first target (T1 at 46.75) for a 9.7% gain since entry just a couple of weeks ago.  Consider booking partial or full profits and/or lowering stops, depending on your trading plan.  The reason that multiple targets are used on RSOTC is to accommodate various trading styles.  Short-term, more active swing traders might prefer to book partial or full profits at one of the initial target levels or possibly micro-manage a position around these levels (sell/cover on the target & go long again/re-short on the bounce).  Less active swing traders might choose to hold out for one or more of the higher (numerically) targets, shooting for larger gains while using larger stops.

When a trade setup is originally posted, the target levels are where I would expect a decent reaction (bounce and/or consolidation around that price level).  However, the charts are dynamic… constantly changing and as such, the best time to evaluate whether a reaction off a target level is likely to occur is at the time, or just before, the trade reaches that target level.  With trades based off the daily time frames, as the majority of trade ideas shared here are, I will typically reference the 60 minute chart to assess how likely a reaction off a price target will be.  Things to look for are candlestick reversal patterns, divergences, capitulatory volume patterns, moving averages, etc…  However, I also put a lot of weighting into the outlook for the broad markets and/or the sector that the trade belongs to.  More often than not, if the broad market or a sector looks poised for a reversal (e.g.- a bounce off support) then the trade in question will follow suit.  The point is that there are numerous technical variables that come into play when deciding when to book profits on a winning trade or continue to let it ride.  It is also important to define one’s time frame & preferred targets for any trade before entering (failing to plan is planning to fail!).  However, even the best thought out plans should always be open to revision, should the facts (i.e.- charts) change, which they often do.

With that being said, here are the previous & updated daily charts of ABG along with the 60 minute chart.  I still favor a relatively minor bounce off T1 for two reasons:  1) The broad market (SPY) hit my first downside target yesterday and as expected, has bounced from there and might have a little more upside left.  If & when the SPY takes out yesterday’s lows, I’d expect the selling in the broad market to accelerate with the SPY likely heading towards T2 (on the 2-hour chart) and most short trades following suit.  The other reason 2) that I still favor a bounce off T1 on the ABG trade is the potential positive divergence in place on the 60 minute chart.  I consider positive divergences on the MACD as “potential” when the indicator is making a higher low against prices making a lower low but only confirmed once the fast line crosses above the slow line on the MACD (bullish crossover).

Jan 272014
 

I just wanted to reiterate the importance of defining one’s time frame when trading.  The market analysis on RSTOC, as well as many of the trade ideas share here often use charts of varying time frames (e.g.- 60 minute, daily, weekly, etc…).  Typical swing traders, trend traders and investors should not be overly concerned with the intraday charts (15 min, 120 minute, etc…), other than maybe to give a heads-up or early buy/sell signal on a trade.  The current scenario laid out on the 120 minute (2 hour) time frame for the SPY shows an expected bounce off the T1 level, which was previously stated as 177-177.50.  As I type, the SPY has so far hit an LOD of 177.12, smack in the lower end of the target range and close enough for very active, short-term traders to book some profits on shorts or position long for a possible quick bounce.

I will almost always give a higher weighting to the longer time frames and what the bigger picture is telling us right now is that the major US stock indices have recently broken below key uptrend line support on the daily time frames (with some at or near minor support levels).  Those charts can be view in real-time via the Live Chart Links page under “U.S. Stock Indices”.  There are many ways to incorporate the market analysis and trade ideas posted on RSOTC.  In the example above, nimble, active traders might try to profit off a quick bounce off this first support level while typical swing traders might decide to take advantage of any bounce today to add some short exposure.  A more conventional, less aggressive trader might even wait until the AAPL earnings are out of the way and wait to see the markets trade below today’s lows or even print another close below the daily uptrend lines/wedge patterns before adding any new short exposure or further reducing long exposure.  The important thing is to define your time frame and trading style in order focus on the technical events that are relevant to your trading and tune out those which may just be “noise” (i.e.- the very short-term gyrations in the charts).

Oct 182013
 

The first series of charts below are some of the major US stock indices, including annotations.  Basically, most US indices, other than the Dow Jones Industrials, continue to make higher highs while nearly all key momentum indicators and price oscillators continue to print lower highs (i.e.- negative divergences).  Such multi-month divergences were also formed leading up to correction in the 4th quarter of 2012.  Divergences of such magnitude don’t always play out for a significant correction but more often than not, they do.  This has been Continue reading »

Oct 012013
 

FB 4 hourFB will be added as an Active Short Trade here around the 50.45 area.  On Sept 13th, Facebook broke below this very steep & overextend wedge & proceeded to backtest the wedge from beneath while forming an ascending channel with the parallel (blue) uptrend line.  Prices have now broken below that channel with the MACD poised to make a bearish crossover, thereby confirming the divergence put in place on the recent highs.  T2 (42.48) is the preferred target at this time with T3 (39.17) as the current final target.  Stops should be determined based on one’s preferred target, using no less than a 3:1 R/R (risk to reward ratio).   Most trade ideas on RSOTC list multiple price targets to accommodate various trading styles.  Using this FB short trade as an example, a very active trader might only target T1 looking to book a quick, relatively modest 5.5% on a trade that is expected to last anywhere from a couple of days to less than two weeks while a typical swing trader who is bearish on both FB & the broad market in the short & intermediate-term might prefer to hold out for T3 with an expected holding period of a few weeks to a couple of months, possibly Continue reading »

Sep 232013
 

I received several responses to the chart posted earlier today showing the Fibonacci time zone cluster on the $SPX.  One follower of the site shared how he successfully used Fib time zones with GDX on the weekly frame as I replicated on the chart below.  Someone else had inquired why my chart showed the lines initial sequence of the time zone lines as 0,1,1,2,3 when on his chart the lines were sequenced as 0,1,2,3,5,8,….  I use various charting platforms but most of the charts that I post, including the one referenced in today’s previous post, are from the TC2000 platform, which is a subscription service from the same company that provides FreeStockCharts.com.  Both are popular and very user-friendly charting platforms with the primary difference being a few more bells and whistles on the paid version.  The weekly chart of GDX from TC2000 is below followed by the weekly chart of GDX from FreeStockCharts.com.  Both use the Oct 2008 bottom in GDX as the starting point (“0″ line) with the second line set to the late May/early June 2009 reaction high (actually, just slightly before it as slight liberties/adjustments are often needed to match the best “fit” between the price of a security and the Fibonacci time sequence).  The remaining lines are automatically set based on the predetermined sequence discussed below. Continue reading »

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