Michelle B submits: I remember reading about a French housewife who when asked by her husband every morning what they would be having for dinner would always give the same tireless reply: “It depends on what jumps into my market basket.” Some traders prefer to trade from a prepared watchlist. For me, trading is interesting because I do not know what will jump into my market basket. My preparation is my confidence in my ability to execute perceived opportunities according to my risk parameters.
Using the premarket top gainers/losers scan, I search the NASDAQ, NYSE, and AMEX market stalls for any tasty morsels and look for any stocks moving on the highs/lows scan. I also check Briefing.com and MarketWatch Newsfinder for news that has happened since the close of the previous trading day—identifying which stocks the market considers to be newsworthy is one of the many trading skills which can be developed.
In addition, I note via Briefing.com calendars such events as economic reports, earnings, Fedspeak, splits, upgrades/downgrades, and conferences. Usually, I have around ten to twelve trading candidates. Sometimes, there are none or a very small number. In that case, I patiently wait until the market has a new batch of fresh candidates—I will not make do with stale merchandise.
I list the stock symbols of my candidates and the important economic events for that day in my journal. Next to each stock symbol, I put the results of my basic Yahoo financial research—reason for price movement, float size, and short interest. I identify support and resistance on various timeframes. Sometimes, I check Yahoo Finance message boards and blogs to find out why a stock may be moving. Though in that case, I am always on my guard to weed the chaff from the wheat.
Then, I place my candidates on the chart pages of my Advanced Trading Platform (ATP). Four thirty-minute charts go on pages two through four. The main page contains the following windows: order entry, order status, real time portfolio, high/low scan, top gainers/losers scan, watchlist containing, in addition to my trading candidates, the major indices and technical indicators like VIX and TICK. Last but not least, is a chart window for the most promising candidate.
Discovering that ININ—set to gap up because it has given higher earnings’ guidance—has a very small float and moderately high short interest, coupled with my knowledge that such stocks often move very strongly on low volume days, like Fridays, pre-holidays, and summer days, makes ININ the star attraction at this stage.
The market opens, and since I am particularly interested in seeing if ININ can trigger a trade, it gets top attention with a one-minute chart (above) on my main trading page. Meanwhile, I am flipping through my chart pages to see if anything is close to triggering—nothing yet. I check the one-minute chart of ININ, and I see the choppy pennant being formed at 10 A.M. The pennant range is around .25. That’s enough of a sign for me to buy half of my lot as close to the bottom of this formation at 13.65. Buying a partial lot before the actual breakout happens makes sense in high-probability trades, especially if the desired lot size is substantial. I am set to buy the rest via an automatic buy stop if it can clear the top of the pennant at 13.87 on the 5 minute (see below). Trades moving strongly in the morning require monitoring via shorter time frames.
Fifteen minutes later, it does, and my full lot is in, average cost around 13.78. Just before the breakout, the pennant was around seventy-five percent completed and the volume dried up. Triangles/pennants need to be not completely formed or else they usually just fizzle out and do not support strong breakouts. The pause in volume is what my trading buddy calls a lullipop, a lull before the breakout, where the equilibrium between buyers and sellers end and the buyers take over.
Part of my prepurchase research of ININ was its support and resistance based on weekly price level resistance. Since the open of the July 24, 2006 weekly, bearish, high-volume candle was 14.81 (see below), therefore trapping lots of traders at that level, I determined the resistance to be around 14.80. The target of 14.80 also matches the length of the pole on which the flag formed on Friday’s intraday charts, forming a measured move and confirming the resistance.
As the ININ trade continues, I am monitoring the price action on different timeframes, and have my mental stop under the flag for the first half lot at 13.53 and then just above the flag at 13.89 for the complete lot. Price is smoothly rising—each candle opens near but not with much overlapping to the close of the previous candle. I put my sell limit in for the full lot just under the target price. My offer gets lifted fairly easily, and I am out with a $1.00 move gotten in about 40 minutes. Since the risk was .25 for the complete lot, it was a +4R trade. For quickly moving stocks, I will often forgo hard stops, but it is a risk because my net connection could be interrupted. Then my carefully constructed trade will exist only in cyberspace floating without my pilotage. So, I am working on the artful science of consistently setting hard regular/trailing stops with upper triggers via bracketed orders to take care of that possibility.
My market basket is now empty until the next fresh thing jumps into it.
Nice trade Michelle, thanks for sharing!!
Great post. Welcome aboard!
Michelle – thanks so much for the detailed post! It’s always fun to cheer for folks who did well, but “I got in here and I got out there” isn’t very helpful to us lurkers. Your post, OTOH, details your thought process as the trade evolved. I’ve flipped back and forth between it and my own charts of ININ, and have had a couple of AHA! moments which will improve my trading. I officially owe you and Mike one cold beer each.
Good trade, and great writing. Thanks for sharing it with us.
Excellent post Michelle. Appreciate your generous insights.
Glenn, It is fantastic to be able to share knowledge and skills with people I have never met and probably never will. It is the global village I always dreamed about.
TraderX, Welcome aboard? Aboard that stretch limo of yours that Estocastica managed to get a photo of? How very friendly! But I rather walk (teehee).
Will, Your taking out the time to digest the details of my post by your flipping through your own charts to deepen your understanding of what the market was telling me at the time of the documented trade is my reward for the time it took me to write the post.
That is how you assimilate trading skills, how you add to your existing skills, how skills become second nature, and how you will be able to rely on your skill set the next time you stalk a trade. Acquiring skills is not magical–it is hard work taking time and effort but the market is the best teacher and is equally available to all.
Tyro, you are very welcome, and I am, in my turn, very thankful of Mike’s generosity in general and in particular by accepting my contributions. And I am really glad he punctuates his entries with those lovely emoticons, otherwise I would never know he is a friendly guy (teehee).
Jamie, Your blog is one of my daily must reads.
Hi All,
Here is how my trading looks like.
I have a programmed Wave59 with my own daily
support resistance levels. I just come in 16:30
Yeh, this is 9:30 NY time in Israel and turn on
my Laptop. As soon as any stock dives or runs up ( I watch 40/50 stock quote ), I quikly punch the symbol on Wave59 and see if these levles are hit and BOOM, just buy or sell.
Example Yesterday bought GLD at within 4 cents from the bottom, sold it with 2 cents from the to of initial runup. bought back at 60% retracement and sold again after runup to the resistance, where the first runup was.
That simple, 140 points without work.
Thanks for Reading.
Great post, Michelle, and very good writing. Posts like this are must reads.
Michelle,
How are you computing the length of the flagpole?
Dave, Thanks.
Paul,
The length of ININ’s flagpole is from approximately 12.76 to 13.90 (the flagpole is not in one piece depending which intra timeframe you are looking at), and the second leg up is approximately from 13.74 to 14.89.
The basic form, first leg up, consolidation, and then the second leg matching the length of the first leg is shown here:
http://mysite.verizon.net/resppzq7/mmu.html
Like with any technical edge, it is only an estimate and never the holy grail. And I will always try to validate it by using another means, as with ININ, the weekly bearish candle open confirmed the likely target.
Michelle: I risked life and limb getting that shot of Trader-X’s limo! His body guards are quite intimidating! I considered selling the shots to The Superficial but I started receiving “anonymous” threats.
I too have enjoyed your comments around the trading blogsphere — great insights and I look forward to your future write-ups. I also caught ININ but for less of a gain.
Please feel free to leave any comments at The Mercado, as your analysis would be much appreciated. Best of luck!
Paul,
A little homespun approach that I used during the ININ trade was counting the numbers of grids on the 15 minute chart comprising the first leg up, and then counting the equal number of grids (or fractions of grids) from the bottom of the consolidation to give me the likely target of the anticipated second leg up.
Estocastica,
And us lowly peons are grateful for your heroics in capturing indisputable, visual proof of how the other half lives. We salut you!
ININ did set up for a second trade later on in the day, but by that time I was having an expresso with George Clooney at his Lake Como pad (which is not too impossibly far from where I live), splurging my ININ wins to satisfy his every whim.
I wanted to comment at your blog, but the gmail restriction was a problem for me. I have a gmail account already, and do not want to get another or change the present id, and it is an id I do not want to make public, and I do not want to post as anon, I want to post as Michelle. If I can do that, let me know.
Michelle: I’m sure George is a happy man today!
Yeah, the gmail account thing is a definite drawback of using Blogger Beta. To workaround this restriction and post as Michelle, when you get to the comments page just select the “Other” button and you can type your name into the “NAME” text box. This will allow you to post as Michelle without using your gmail account. I hope this helps — let me know if you have any other ?’s.
Michelle, after reading your comments on people’s blogs, I was hoping that you would spell out more fully your methods, and today, we have it. Welcome, and thank you very much.
Mike, Very Educative! Thank you!
Thank you Michelle. Very nice of you to share this educative trade!
BBC, It is great to be able to reach readers who do want the details about realtime, active trading. The blogosphere, with its ability to monitor spam and useless comments is like a hothouse, it can protect seedlings in their vulnerable early growth, and encourage significant growth by providing shelter and warmth. Compare the spirit of the present trading community connected by several great blogs, to the malicious mayhem present on many Yahoo message boards.
Sam, you are very welcome.
Michelle said:
Not to mention the trading specific forums around the web!
Michelle,
great show…very good example of the “performance” of a real discretionary trader and why discretionary trading is and will ever be the real thing…it mostly only takes 1 trade a day to be hole
Interesting stuff Michelle.
Though don’t you think monitoring 10-12 trades in short time frames can get very hectic, causing one to loose focus? Especially the 1-5 minute time frames can lead to fake moves.
Look forward to hearing from you.
Yaser
Forgot to ask, on Friday, I’m guessing ININ was moving pre-market where it caught your eye right? And your scanning software is eSignal? (Just confirming)
thanks!
Yasser, 10-12 candidates are alot, but it is not often that I get such a large watchlist. As I mentioned in my article, sometimes nothing pops up or just a small number. And if I did have a larger number of candidates, most of them would be on my 30 minute chart pages. ININ was the only candidate I was watching on Friday on the one minute because it was my top candidate based on my premarket research.
It is very important to have only the amount of candidates that you can handle, so you can focus easily enabling you to execute the perceived opportunity and manage the trade.
ININ was a gapper up and that information could be found in a few places, like briefing.com. I stopped using esignal because it was redundant, as the advanced trading platform provided by my broker is sufficient for my needs.
If I may ask, who is your broker Michelle?
Thanks.
Yaser, There are many online brokers that fit the bill for the needs of a daytrader, the platform is usually referred to as an advanced trading platform (atp).
You want the following at a minimum: streaming intra 1,3,5,15,30, and hourly charts, ECN access, clickable ordering and order entry defaults (to execute as quickly as possible), realtime account balance and realtime portfolio, advanced ordering features like trailing stop and bracketted order (stop loss and target order goes in at the same time), high/low ticker, and premarket top gainers and losers scan, TOS (Time of Sales), Level II quotes.
Less important (to me that is), sound alerts, ability to annotate charts with trendlines, etc, and notes, and streaming news. I actually prefer to use clear plastic rulers across my screen to note trendlines!
Brokers can have different requirements for margin, minimum account balance, etc. All brokers have technical problems from time to time.