Gap Entries HOD/LOD Principle (John Lee post)

A great post by John Lee about playing gaps from www.Chartsgonewild.com. 

1) ISSI (long) – Break of the high of day (Afternoon Secondary Breakout – ASB)

2) POT (short) – Break of the low of day (Morning Initial Breakdown – MIB)

3) NFLX (long) – Symmetrical Triangle Breakout (Pattern Breakout)

4) SBUX (long) – Break of the days high (Morning Initial Breakout – MIB)

5) UA (long) – Break of the days high (Morning Initial Breakout – MIB)

6) CRUS (long) – Break of the days high (Morning Initial Breakout – MIB)

New Trading Set Up!!!!

Lacking Discipline, Need To Execute Trading Plan

Lacking Discipline
Blowing stops
Not selective on Trades
To many "follow trades" with no plan

Trust Your Patterns and Fuck ITrade!

First off, FUCK ITrade.  My RELL stop sell was filled today.  Stop sell @ $12.69, day's low @ $12.70.  Well placed stop (a little lucky, yes) was filled @ $12.71.  RELL rallied to close @ $13.04.  ITrade says that sell stops are triggered by the bid. 

I need to trust my charts, and trade according to my plan.  Bought LPX as a swing play yesterday.  The plan was an entry @ $8.21 (above previous high of flag) and a stop @ $8.01 ($0.01 below previous day's close).
Executed my entry, but sold for a $0.05 loss (thought stock was thin).  Today, it B/O.  PATIENCE, STICK TO MY TRADING PLAN. OBEY MY RULES.  Rather simple.

 

Followed JL into YRCW swing/positional.  Nice flag B/O today.  Initial target is 100 day MA @ $4.50, then the 200 day @ $6.57

Swing position in VG as well.  In hindsight, entry should have been made on break of the flag's high $3.39, rather than break of day's high ($3.31). Nonetheless, I like the look of this flag and have an average price of $3.3033.  Initial target is $3.77, then $4.43.

Traded MU on break of previous day's high $10.11 with good volume.  MU reversed @ 10.20, and I was stopped out @ $9.97.  Still like this flag, but no position presently.

Tomorrow, look for continuation in YRCW(4.26), TUES(5.02), CATY(17.51), ELN(7.10), SMOD(6.75), IO(9.01), PCS(13.51), LWSN(9.65), OCZ(7.88), GRT(9.01), LXP(8.46).

NVDA

Traded NVDA today

Scalped the open for + $0.13, .and re-entered on the break of the previous HOD @ $23.69.  Closed 4/5 of position, carrying 1/5 overnight.

Closed my MOTR short position for + $0.83 gain

Swinging AMKR ($7.79), RELL ($13.054), COCO ($5.25), RNN ($1.625), and CIM ($4.21) into tomorrow.

First Short Sale!!!

Finished "Trading In The Zone" by Mark Douglas and learned a lot about the mentality of a successful and consistent trader.  It reinforces the rules and mindset needed to be successful in such a random environment.
I will be a consistent  and winning trader because:

1. I objectively identify my setups
2. I predefine the risk of every trade 
3. I completely accept the risk or I am willing to let go of the trade
4. I act on my setups without hesitation when my entries materialize
5. I predefine my profit points based on MA / Previous Support/Resistance and scale out to ensure a profit
6. I continually monitor my susceptibility for making errors 
7. I understand the necessity of these principles of consistent success and will NEVER violate them

 2 trades today.  The first was MXIM @ the open.  Waited until the 3rd 1 minute candle for entry and confirmation

 

My second trade was a late day trade.  MOTR was in a downtrend all day.  The closest supporting MA was the 100 day @ 18.85 (HOD), and it was bouncing off the lower BB.  Small position @ $17.89 and rode it down! Shorting is fun!  Sold 1/2 @ 17.54 and holding the remainder as a swing over the weekend.

Of note, my last 2 stops were hit this morning

ARNA for a 5% loss

JST for a 9.5% loss

Market Correction

I had the honor of speaking with John Lee, aka THE CHART ADDICT today for 1 1/2 hours.  Learned so much during that conversation, and will apply my new found knowledge.

• Ask more questions

• Make sure my questions are all answered

• Wait in the mornings for market to figure itself out (5 - 15 minutes right now, this could change)

• Secondary afternoon B/Os are easiest setups - look for break of pattern with price spike and high volume (no need to wait for break of HOD)

• Gap above the high of any black filled candle = bullish kicker (very rare, very profitable)

• Listen to my rules

• Ride out last 1/4 of trades as long as possible 

• Look at MAs, support and resistance levels for profit targets

• Keep an eye on daily chart, don't become tick-tarded

3 Trades today

DNN, again, top picking .  Rushed entry.  Was  waiting for a break in HOD (pre-market @ 3.71), put sent order once it hit HOD.  Quickly reversed.  Exit was a break of LOD.  Happy with my exit, need to be patient on entry

 MNKD was fun.  Flash crash, entered on subsequent momentum candle.  Entry was 8.56, sold half @ 8.90 and other half @ 8.95, but the fills were not good (too volatile).  Actual fills were 8.58 and 8.76.  Small gain, but easy trade.

Also traded ICGN.  Need more patience, and must have a concrete plan before entering the trade.  I am formulating shit during the trade, getting scared, and selling my positions.  HAVE A PLAN AND EXECUTE.
Entry on break of HOD (got it right), just did not give it enough room. 

Closed out some Swing positions today, C for a 6% loss,  LIOX 1% gain , MNI 6% gain.  Still holding ARNA, JST, ASTM

TRADING IN THE ZONE just arrived in the mail yesterday.  Can't wait to read it tonight!

Shake Out, Misplaced Stops

Today was a day of shake outs and misplaced stops

SPWRA

I tried to play the momentum once the HOD @ 14.35 was breached.  A small move up to 14.42 was followed by a quick move down.  I gave the trade $0.10 risk to the downside, and was quickly stopped out.  Tried a second time once 14.42 was breached as the HOD.  Stock attempted multiple times to run, but volume was low.  Then a nice break down.  Based on the initial trade, I allowed $0.15 risk, and was quickly stopped out before the stock ran and closed @ $14.62.

1 - Don't trade between 11:00-13:00 MST
2 - Have a better plan, work on placing better stops

JOE

Swing trade Joe 01/05/11 @ $22.22.  Sold 2/5 on 01/06/11 @$23.13 and 2/5 on 01/06/11@$23.10.
Joe broke below $23.00 this morning, making a morning low of $22.80 and bouncing back.  I set a stop @ the days low, and it was quickly hit, before breaking out to $23.50.
(Traded as low as $20.60 in AH news.  Only had 1/5 position left, but I don't feel so bad about my bad stop now)
1 - Improve on placing stops
(Still need to improve placing stops)

1st negative day of 2011.  

I am realizing that I need a better plan before entering into trades.
1. Have a predetermined risk
2. Have a predetermined upside
3. Have a better understanding  of the resistance and potential targets

Charts to Focus on during Scans

Developing.......

Narrowing down my watchlist and selecting the best possible setups to trade.  Focus on the best setups and best chart patterns.  Best paterns are High and Tight Flags, Triangles at their Apex, and Ascending and Descending Wedges at their B/O levels.

Look for MA (multiple) near support levels, BB tightening up

Example of High and Tight  Flag

JOE (NYSE) - 01/05/11 - 01/06/11

 

Triangle at Apex 

SHZ (AMEX) - 12/29/10 - 01/04/11

Ascending Wedge @ B/O Level

Descending Wedge @ B/O Level

BAD TRADE / GOOD TRADE

XING had huge volume pre-market and a nice gap.  I thought the setup was very similar to the XOMA play we had yesterday.  Before the market open, I remembered John's comments from yesterday about being patient, and letting the pattern develop a little bit.  At the open, saw the big green candle with huge volume, and bought... at the high.  Set a stop $0.02 below open for a 5.6% loss (on position).  Tried again on break of down trend line, way too late.  BAD TRADE, TOTAL LOSS of $600.00 on this trade. 2 bad entries!

 

I made up the losses and some on 3 other trades.  MOTR bought at $18.68 was sold at $19.63, and bought again @ 19.74, sold at an average of 20.04.

SRZ entry on break of HOD and it just kept climbing.  Played afternoon secondary breakout on tightening consolidation and increasing volume.  Entry was 7.01 (there was resistance and support @ 7.00 in the initial B/O).

Sold

CHGN + 2.7%

OCZ + 5.3%

Buy

JOE  @ 22.2199

CRIC @ 9.1699

ARNA @ 2.00979

Overall, best trading day ever.  Almost reached my goal of my 1st $1K day.

FINDING SWING TRADE CHARTS

Erock: What do you look for on swing charts?

DanishGUY_Mucus: tight bullish consolidation, easy entry points and good risk/reward

DanishGUY_Mucus: I like to get in just before or very early in the move

DanishGUY_Mucus: and I obviously look for bullish patterns, such as high and tight flags, ascending triangle, falling wedges

Erock: Is there a specific consolidation period that you look for?

DanishGUY_Mucus: And I take moving averages, bollinger bands in consideration too.

DanishGUY_Mucus: look at ATPG my most recent winner, it consolidated and ut in a few dojis or bull flag just below resistance last week

DanishGUY_Mucus: I got in at the first sign of strenght breaking out of the flag. You could see how momentum was building up on the daily chart

Tight consolidations, dojis in a pennant or flag make for explosive moves

STUDY THE MOVERS!

Day 2

MORNING MOVERS, SECONDARY BREAKOUTS

XOMA was the priority this morning. I asked John why XOMA, and what his plan was during the trade:

XOMA pre-mkt vol was identified using the Nasdaq pre-mkt movers site

Jan 4 2011, 8:32 AM

John Lee: gap was plotted on the daily, it showed a full gap above nearest consolidation

John Lee: well, it wasn't going to the 200-day ($5.25)

John Lee: the next option was for the upper band

John Lee: which i believe it still hasn’t hit yet

the rare earths were all mixed and the other stuff wasn’t really cutting it

John Lee: XOMA was the only one remaining for candidacy

Jan 4 2011, 8:34 AM

cath_campbell: yeah, the BB on XOMA is 7.21 according to Freestockcharts...

cath_campbell: yeah, and John mentioned the huge volume in XOMA in the first few minutes! that means huge buying interest!

John Lee: after only the first min of the day, XOMA already exceeded yesterday’s vol

 First entry was at open on first green candle as massive volume was coming in.  Took a quick scalp for small profit.

Re-entered on break of consolidation triangle @ 6.495

Followed Cathy's heads up that consolidation range was tightening.  Entered late, as ideal entry was around $6.65 - $6.67

Also took a quick scalp on RCP

Sold off some swing trades that are not materializing.
1/2 of VISA for 3% gain
TASR for 0.8% loss
Bought some MOTR

Day 1

Will finalize plan for 2011, including monthly goals (trading, learning), trading plan, and focus on areas that need the most improvement

I can't wait to get my new computer as it will make it much easier to keep tabs on more charts.  Laptop trading sucks.
Traded LLEN, NVDA, and AVL breakeven today.  Despite John's warning about laggards and sequential trading lesson to focus on market leaders in a group, I chose the laggard, twice. John nailed MCP while I took losses on SHZ

I find myself attracted to stocks that trade in the $3-$15 price range, and put off by $20 + (don't even consider stocks trading above $40).  I will have to re-evaluate this mindset.
Small positive day for today, as I closed out my swing position in BPFH for a 6% gain.

Tried trading AVL on a secondary breakout.  Trade ended B/E.  I should have paid more attention to the volume disappearing.  Entry was $.02 above previous HOD, and scaled out well for the first 3/4 of the trade. 

 

In preparation for earnings: 

http://www.stocktwits.tv/charts-gone-wild-with-john-lee-020210-part-2/

In Play Stocks by @TheArmoTrader

A nice example on how to play morning Gap stocks -

When day-trading “In-Play” stocks, using pre-market levels is huge during the regular trading session.  The levels set in pre-market usually will be places of interests for traders looking for support or resistance. This is especially true if that stock has not been at those levels in a long time. Today we had this scenario in Anadarko Petroleum Corporation, ticker symbol $APC. It had gapped up on news that $BHP may offer $90/share to buy them out, thus making it an In-Play stock.
Here is the 2 day chart of $APC, with only extended hours showing for today’s (December 30) action.

Pre-Market Levels

As you can see, I have drawn a line in areas that were important for the day. Two areas a trader should have been watching during the intra-day action was $74 (2 tests in pre-market on the 5 minute time frame) and 76.40-76.50 (2 tests in pre-market). These would have been obvious support and resistance levels one could have used during the regular trading hours.
Lo and behold, the levels came into play as $APC first spiked on the open but then sold off to go and find support at $74. Had you gotten in at that level with a reasonable stop (being a $70+ dollar stock, a reasonable stop should be anywhere from 0.25-0.35), you could have caught a nice 2 point move to resistance at 76.40-76.50 where after failing you could have dumped your shares for a nice profit. I would love to get this opportunity everyday as this was a great risk/reward trade. You risk $0.25-0.35 to make $2, making that over a 1:8 risk/reward ratio. Truth be told, I missed this trade mainly because I was not trading today, but come the new year, if I get this opportunity every day I trade, I will for sure seize the chance and take it.

Watchlist, 01/03/11

NVDA, TER, DHI, AMAT, THC, SLE, FTR, MOT, URG, CHGS