Wednesday, May 27, 2015

My Gapper Strategy Explained!

There has been some confusion about how I trade the gappers and why I don't trade them like Ross since I promote his chat so much.  I have gotten an ugly email or two from a few people that have lost a couple thousand dollars trading the Gap and Go strategy.  Well, the first time I tried it I lost $265 within 1 minute.  That was the most I had lost by far since I started trading and to do it in 1 minute, well needless to say I was hot.  Not at Ross, because he made money so I knew the strategy worked, but at myself for not listening to him in the first place.  Ross will be the first to tell you that if you are trying a new strategy out, paper trade.  Just like anything else in life you do, you have to practice first or you will learn the hard way.  Even the simplest of jobs take some degree of practice to perfect your performance.  I never practiced that strategy and jumped in with both feet and learned the hard way.

Now what I did next is what separated me from them.  Instead of continuing to throw money at it, I took time to learn it and see if it was a fit for me.  Even though I like the Gap and Go strategy, I do not have the emotional fortitude to trade those.  Ross is the coolest trader I know.  I am amazed everyday watching him in chat.  You would never know whether he was in a winning trade or a losing trade unless he told you.  That is the sign of a true trader.  I knew I wasn't at his level of comfort as a trader.  When I first started there wasn't a video feed and all you heard was his voice.  I would get the same feeling about how calm, cool, and collected he was.

Here is what I knew.  To be successful day trading, I had to find the stocks that were in play that day.  If I waited to the market opened and started looking, I would feel like I was behind all day.  I know this to be a fact because it happened a couple of times because of work.  So I knew searching for the pre-market movers (gappers), was the way to go.  I also knew that the first 5 minutes of the market open was the most volatile, however I didn't have what it took yet to be able to take advantage of it so I had to adapt the Gap and Go strategy to something that I could work with.

This is how I came up with the "15 opening range breakout".  It's nothing new.  The opening range strategy has been around for years.  It is traded using the 1, 2, 3, 5, 10, 15, 30, 60 minute ranges.  I chose the 5 because it worked around my schedule at work, my break is from 9:30 to 10:00.  It just so happened to work for me.

Typically, during the open of the trading day, which, as I said before happens is the most volatile emotionally draining part of the trading session, markets absorb the overnight information and reflect this information in their price. Even though most markets are open virtually around the clock, the majority of volume and volatility does not appear during the after hours or pre-market sessions, but begins after the stock market opens each day at 9:30 EST. This is when institutional traders come into the market, buying and selling massive amounts of shares through computerized trade executions systems called program buying and program selling. The volume is so big that it can have a very strong impact on the short term movement of the stock market. These institutional buy and sell programs usually do not get executed during the pre-market session, therefore it is very difficult to truly see what impact the overnight market will have on the stock market till the stock market actually opens and begins trading during the regular day session.

I have witnessed several times in chat when the pre-market momentum is pointing in one direction with a very strong bias, only to open and move completely in the opposite direction within the first 15 to 30 minutes of the trading session, trapping those that were not as quick as Ross to take profit or cut  the loss quickly.  Therefore, the pre-market action can offer strong clues into the direction the market is headed but ultimately, there is no better indicator of market direction than the market itself after the first 15 to 30 minutes of the trading session.  Patience does pay off.  Check out these examples:

This chart is from CCLS from the day I wrote this blog.  As you can see it gapped up pre-market a nice %, typically I like 4% or better, but really like the ones over $1, and it had decent pre-market volume.  I check some other technicals like ATR and the float.  If it looks good I put it on my watch list.  This ticker was actually on my watchlist today.  I didn't trade today because we are closing out our school year and I'm packing, but I would have traded this if I was at my computer.  I put my watches in my chart montages and wait for the first 15 minutes to pass.  The 15 minute opening range is marked by a green trend line (high), and a red trend line (low) of the first 15 minutes. I like to use a 5 minute chart for this. 1 and 2 minute charts are too noisy for me.

As you can see it faded a little at the open and then quickly recovered above the VWAP.  For me that is a good sign that I will have a trade.  If a ticker is starting to look good I will put in a limit order .02 above the green trend line.  If the market is a little slow I will wait until a candle closes above the trend line before I enter. In either case my stop will be .05 below the green trend line.  And if you are really feeling good you can enter after it pushed the VWAP with a stop a couple of cents below it. Now, because there are other traders out there trading the same strategy, I often get a pop over the green trend line, then a red doji or spinning top next, and then it makes it's move.  If I get a solid red candle, I may just take it off and wait for further confirmation.  My target is usually the next obvious resistance level based on the daily chart or the +2 deviation band on my VWAP study if it's far enough away.  Sometimes I like to exit off of my interpretation of the price action but I try and stick to targets unless the fade back comes earlier.

But, I'm not done yet!  There is usually another opportunity to trade the gapper after a pullback or consolidation.  This is a throwback from my early days.  It will either setup with an ABCD type pattern of it will start gearing an perking around the consolidation point building up for another move to the up side.  It can also set up for a reversal or VWAP trade.  In this case, it started gearing and perking and then it popped again and gave another trade opportunity, then set up for a top reversal to give even another opportunity for a trade.

This example shows why I eventually made the move to using the 5 minute opening range .  Because this ticker was strong out of the gate I would be looking for a pullback to VWAP to enter or a reversal because waiting the first 15 minutes took up most of the range.  The easy money on this would have been the 5 minute opening range breakout.

This is an example of a failed 15 minute ORB and why I like to tell new traders to wait for a candle to print completely above the 15 minute opening range price.  If I had entered on the candle that broke the opening range high I would have been quickly stopped out on the next candle.  I always need confirmation.  I may miss a trade or two but more often than not, it pays to be patient.

$1,185 profit PBMD Long Stock by AverageJoeTradr

This is a trade I took on a gapper a couple of days ago that shows another way my trades can set up.  This ticker actually consolidated around the 15 minute opening range high before it popped.  I didn't initially take the trade above the trend line because it was so strong out of the gate and the 1st candle to print above the line was a doji so I expected a pullback.  It never really pulled back and it held above the VWAP so I knew it would be a good trade.  I drew another green trend line at the 2.95 mark because that was the highs of the consolidation candles for my possible entry point.  I actually put an order in at 2.95 and buzzed some of my other charts and saw another setup and completely forgot about this one.  Thankfully I already had my order in and I caught the trade.  That quick spike up to 5.50 and pullback scared me out of the trade.  Usually that means a trend change is coming but it went on to run up another point.  But, the point is the 15 minute opening range is a solid, viable setup.

There are a few conditions that should be taken into consideration prior to taking a trade using this strategy:

1.  Time of day - the quicker the ticker can break above the 15 minute opening range, the better the odds of the trade working out. In addition, most breakouts that occur later in the day will not have the momentum needed to sustain the volatility and direction that is needed.  This can affect your risk/reward ratio.

2.  Biased toward the up side - sometimes I see tickers swing back and forth between the high and the low of the opening range. Most of the time when I see this type of price action I avoid entering the trade even though all other of my parameters have been met. The price action to look for while a ticker is setting up is when it tests the high more than once or consolidates just below the high, making higher highs and higher lows in anticipation of breaking out. What I don’t like to see is a ticker that keeps bouncing back forth in a choppy trading range between the high and low trend lines.

3. Volume - I like to see volume increasing as the ticker is setting up for the breakout.  However, as long as volume is only dropping off gradually but is still within the range that it was during the first 15 minutes of the open, I will still consider the trade. But if the volume is barely coming in compared to how it was during the first 15 minutes, I will most likely not place the trade. Watching the volume is not really an exact science, the more you track it with your trades, the better feel you will get.

Like any other setup it doesn't work every time and there are days when the gappers just do not run.  But at least 2 days out of the week you should see some solid gappers provide trade opportunities.  I do believe this strategy, when reversed, can be used to short these gappers if they go the other way. This is something I will work on over the next couple of months because when the longs aren't working, the shorts have to be!

Monday, May 25, 2015

Trading Strategy Update/Weekly Update 5/18-23

Well, I am a week away from the next chapter in my life.  The foundation is laid and there's no turning back now.  I have been working on strengthening my setup identification and establishing some routines for me to follow at home.  I could never really get into a set routine at work because there was always something changing and I was back and forth on my computer all day.  However, sometimes I felt it was a blessing in disguise because it kept me from over trading.

One of the things I was looking at was my stock screener.  I have used Equityfeed exclusively for the past year but recently I have been introduced to a couple of others.  I was impressed with Trade Ideas because of how much technical information it gives you when a ticker hits your scan.  It saves some time when vetting tickers for potential trades.  I have been using Ross's screen share in chat to find the morning gappers I would normally find using Equityfeed.  The only thing is that I like to start around 8 but Ross sometimes doesn't get his scans up until after 8:30.  I have been using to catch the early gappers.  I still use Finviz as it's the best technical analysis tool for the money! Lol.

After the gappers I used Equityfeed to scan for top and bottom reversals.  This past week I used the scanner on my TOS platform.  I compared the results for a couple of weeks and found that the results were practically the same so I used TOS exclusively last week.  I didn't miss a beat.  I think I have had a mental block when it came to free things.  I just felt that if you don' pay for something that it wouldn't work as well as something that you pay for.  You know the old adage, "you get what you pay for".  Well, in this case I proved it wrong.

                                                                         All Trades      Long Trades    Short Trades
Total Net Profit                                                $3,075.00 $2,485.00 $590.00
Gross Profit                                                      $3,342.50 $2,515.00 $827.50
Gross Loss                                                        $267.50          $30.00              $237.50
Total Trades                                                      16                  10                      6
Percent Profitable                                             81.25%          90%                   66.67%
Winning Trades                                                13                   9                       4
Losing Trades                                                    3                   1                        2

Not a bad week using all the "free" stuff.

This is just how simple these scans are.  One of the things that I like the most is that these scans will feed directly into a watchlist on my main platform screen. This is a live feed that runs automatically throughout the day.  As with Equityfeed, not all of the tickers will set up but all the tickers that hit my scanner does have the potential to set up for a trade.  With a quick drag and drop to the chart I can get a complete picture of the ticker and possible setup. With Equityfeed I have to keep bringing up the results and then type the ticker into my platform to check the chart and other technicals.

Bottom Reversal Scanner w/ watchlist feed

Top Reversal Scanner w/ watchlist feed.

You can make these scans as complicated as you want them to be.  I had no idea how powerful this scanner was.  But I am an advocate of the KISS method. (Keep it Simple-Stupid).  So I will most likely never experience it all.

What I like about the TOS scanner:

1.  It is powerful and has the ability to integrate multiple studies

2.  Easy to use and create "live" watchlist

3.  Does not need an extra screen to monitor watchlist.  It's integrated into my main platform screen

4.  It's free

5.  It scans all stocks, not just NASDAQ and NYSE which is all I pay for in Equityfeed

What I don't like about my TOS scanner:

1.  Does not scan pre-market.  Would love to be able to scan for gappers and create a watchlist based on my scan criteria.

Another thing I did this week and into the weekend was make sure I had my set-up parameters written down so I can see them throughout the day.  When I think I see a setup I will run down the checklist before I enter.  The main thing I see with reversal plays is that I sometimes enter before it sets up on the 5 minute chart.  Most of my early entries are because I get impatient and predict the move.  I usually get stopped out pretty quick after that.  I haven't change anything that I have already shared in my blog.  I just need to make sure I practice what I preach.

Sunday, May 17, 2015

How I Use Candlestick Patterns on my Trades

Hi everyone!  Free Chat Monday 5/18 @    Come join us!

The candlesticks I focus on the most when it comes to reversals are doji's.  A doji candlestick occurs when the opening and closing price is the same (or close to it).  I like to refer to it as the bears and bulls are battling to establish a trend. Many traders think that this candlestick pattern is one of the best ones to trade because they are the only true "real time" technical analysis indicator we have. However, the reality is that a doji doesn't tell you a whole lot by itself. At best, it only tells you that the previous momentum has stalled because the amount of buyers and sellers have equalized.

For me, a doji is only significant after an extended move to the upside (for a short setup) or an extended move to the downside (for a long setup). Also, the doji should be at or very close to a support or resistance area. In my case I use TOS for my charting and the only upper study I have on my chart is the VWAP.  On TOS, the VWAP comes with an upper and a lower deviation band and I use those in addition to chart support and resistance levels. I know Ross uses the Bollinger bands and moving averages but I like clean charts and will only have 1 upper study on my charts at a time.  As long as the setup I use works, I'm sticking to it.

As I said in an earlier blog, I never rely on 1 indicator to enter in a trade so I will never rely on only a doji to determine whether I take a trade or not.  It is only 1 piece to my puzzle.  Yes I miss trades sometimes but I win a lot more than I lose, so I am good with that.  I may have a lot of small wins but I have a small account that I trade with and it all adds up.  I am making this statement so that it is clear that I do not use candlesticks alone to trigger an entry.  I shared in a previous blog what I look for to help me determine whether to take a reversal trade or not.

Ok, I'm sure everyone knows how to read a candlestick but I am putting this picture in for my peace of mind.

These are different doji patterns and if you look them up you will get the different indicators that each doji may stand for.  I am not including them in this blog because it is useless.  You have to use other indicators to determine where the market is going.  For instance, the Dragonfly Doji is said to be an indicator that a ticker's downtrend may be over and a reversal is eminent.  Conversely, the Gravestone Doji is said to be an indicator of just the opposite.  The fact is I have seen a Gravestone Doji many times at the bottom of a reversal and a Dragonfly Doji at the top of a reversal.  I can't stress enough how useless a single candlestick can be as an indicator for any trend reversal.

The doji that I see the most of when I am tracking a ticker for a bottom reversal is a star or standard doji. The standard doji candlestick, pointed out on the chart below, has two short wicks that are of a similar length both up and down. It appears when the candle has opened and closed at the same level and has moved in a very small to moderate range in relation to the other candlesticks on the chart.
It indicates extreme indecision in the market and a lack of commitment from traders. If other indicators, such as the RSI or crossing the lower deviation band, suggest that prices are overbought or oversold, it can mean a price reversal is imminent.

($50) loss YOKU Long Stock by AverageJoeTradr
$210 profit YOKU Long Stock by AverageJoeTradr

In this example you see the doji comes after 6 red 5 minute candles in addition to a large sell-off pre-market.  The doji printed the LOD and the RSI was just below 20.  I had some reservation because it didn't reach the lower deviation band but the next candle barely made a new high so for me it was a trigger to enter with a risk on LOD.  I actually traded this but went in with too much size to give it enough room to use LOD as my stop and quickly got out.  I still felt the setup was solid so I waited for another entry and caught the reversal move.  It may not reverse immediately because there may be a little struggle with the market but you have to trust your setup and respect the proper stop.

The other candlestick patterns I look for are called hammers.  The Hammer is a bullish reversal pattern that I look for after a big move down. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a big move down, hammers can signal a bullish reversal. The low of the long lower wick implies that sellers drove prices lower during that time period that the candle represents. However, the strong finish indicates that buyers regained control to end that period on a strong note. While this may seem enough to enter a trade on on, like the doji's hammers need further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, preferably on big volume coming in, is needed before looking at taking a trade. The confirmation I look for is the next candle making a new high compared to the hammer, good volume coming in, the RSI, and it's relation to the VWAP and it's lower deviation band.

Additionally this hammer can be called a hanging man if it forms after a large move up.  The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. I do not short many top reversals yet because I am a trader who likes to master one setup at at time so I am only working on bottom reversals.  However from what I have seen this strategy works just as good both ways.

The Inverted Hammer can forms after a downtrend.  Inverted Hammers signal a possible trend reversal or support levels. After a downtrend, the long upper wick indicates buying pressure during the period. However, the bulls were not able to keep up this buying pressure and prices closed well off of their highs to create the long upper wick. Because of this failure, you will want to see additional bullish confirmation before taking a position. I would look for the same indicators as I would for the traditional hammer.

If this inverted hammer forms at the top of on uptrend, it is called a Shooting Star, and can signal a possible trend reversal to the downside.  Same rules would apply to this pattern as the Hanging Man candlestick

This is an example of a hammer signalling a trend reversal.  I didn't trade this reversal because at the time I had some rules that limited how I took reversals.  It was too close to the VWAP, which is always my initial profit taking target, for me to get a good r/r.  I ignored tha massive amounts of volume coming in which is a strong indicator of a trend reversal coming.  I just sat and watched in disbelief as this reversal gained over 2 points!  Without me.  So I can't stress enough how important it is to look at all of the indicators to get a better picture of the setup.  As you can see it hit the upper deviation bands on the VWAP study which are my secondary profit taking targets if a ticker pushes passed the VWAP with strong volume and price action.  I hate I missed this home run!

This next example shows how easy it would be for me to get faked out if I didn't put all of the pieces together before I entered a trade. I still got stopped out for being early but I was very close and stuck with it and caught the move.

($60) loss NLNK Long Stock by AverageJoeTradr
$381 profit NLNK Long Stock by AverageJoeTradr

As you can see around 11:20 an inverted hammer formed and closed slightly below the lower deviation band.  But, I didn't like how high the RSI was and I did not enter.  It continued tracing the lower band down and it formed another doji around 12:10 but the RSI was still above 30. At 12:30 a spinning top, which is considered neutral, printed below the lower band and the RSI dipped below 25. The next candle made a new high so I entered on the next candle. I immediately got stopped out. I stuck with it because the setup was solid and I felt it was close.  Then  a doji formed below the lower band making LOD around 12:50 and the RSI was below 25. The next candle made a new high so I took another stab at it and I got the move I was looking for.

$370 profit HMSY Long Stock by AverageJoeTradr

Here is an example of another reversal trade I took where there were a lot of traps I could have fallen into but you can see the candles were printing on the lower band, The RSI was below 25, but one main ingredient was missing that a ticker needs to help it move up.  Volume.  At around 12:40 I had a candle close below the band, the RSI was 16.  The next candle did not make a new high and the volume was too low so I was still sitting on my hands.  At 2:10 a doji formed making LOD, some volume came back in, the RSI was below 20, and the next candle made a new high, so I took the trade.  You may have noticed that If I get everything else I usually won't worry about it crossing the lower band because I haven't fully studied how significant it is.  I know the lower band is oversold and the upper is the overbought area so I have been using it as a guide based off of that.

$235 profit ROSE Long Stock by AverageJoeTradr
$200 profit ROSE Long Stock by AverageJoeTradr

Above is an example of a reversal where I did not get a doji or a hammer to signal a reversal.  I just read the candlesticks as they formed and confirmed it with the RSI, VWAP study, volume, and Level II. Like I have been saying, everything will not be perfectly aligned but when you get enough technicals to line up you will have a good risk/reward trade opportunity.

This is also a good example of how I got scared out of the trade by just reading the candlesticks and not confirming with any other technical indicators.  Once the highlighted doji printed at 1:20 the next candle opened with a slight move up and then looked to start selling off.  All I had in my mind was the previous doji was an indication that a trend change was coming so I sold not looking at all of the evidence.  Once I realized what I did and I looked at all of the other indicators I re-entered my position and stuck to my original plan to take profits near the VWAP.  This is one of the mistakes that I tend to make often because I have a thing about staying in front of the move.  It may be good or it may be bad but I don't have enough experience yet to know either way.

($51) loss HZNP Long Stock by AverageJoeTradr

This is an example of a trade that never materialized.  The setup wasn't perfect but it was worth taking a chance on the trade.  I didn't like the fact that the candle that printed below the deviation line wasn't a doji or a type of hammer but I felt like everything else set up good.  Also the green candle that printed after it had so much range.  Twice the range of the previous candle. After I was stopped out I continued to track it but it never set up again.

You may have noticed what I noticed when I was reviewing all of these trades.  Most of the strongest moves are created by the tickers that have a doji at the bottom making LOD and having a RSI below 20.  The doji's and the hammers are the only candlestick patterns I look for and use but I only use them in conjunction with the the other technical indicators.  As I develop as a trader I am getting better at looking at several indicators before I make my decisions.  I'm not there yet but I'm getting there.

Have a great week everyone!  And come visit us in chat:
Free Chat Monday 5/18

Friday, May 15, 2015

YOKU, The Trade of the Week

After a slow and frustrating week I needed a trade like this to end the week.  They come few and far between but when you catch one there is no other feeling like it in the world.

$290 profit YOKU Short Stock by AverageJoeTradr
($50) loss YOKU Long Stock by AverageJoeTradr
$210 profit YOKU Long Stock by AverageJoeTradr
$755 profit YOKU Long Stock by AverageJoeTradr
$220 profit YOKU Long Stock by AverageJoeTradr
$285 profit YOKU Long Stock by AverageJoeTradr

I guess the first thing I should address is how this ticker ended up on my radar.  Since the gappers I had on watch failed, which has been happening lately, I started my Equityfeed reversal filter early.  When this ticker hit it looked like the perfect short scalp while I wait for the reversal.  I discovered this strategy a month ago when I was working on my reversal filter setup.  The RSI was still above 25 and it hadn't crossed the lower deviation band that I have with my VWAP study.  I watch the setup using the 5 minute chart but I execute trades using the 2 minute chart.  I will usually hold short until I get a green candle or a doji with price action indicating a possible trend change.  I ended up getting a doji and I exited on the 2nd one.  A doji indicates indecision between the bulls and the bears usually indicates a possible trend change.  Short 500 shares 21.62 @ 9:46  and covered at 21.04 @ 10.01

It just so happened that the doji I covered my short on made LOD and the RSI was under 25 so I started tracking it for a reversal. I actually entered on the next candle but immediately got stopped out, which has proven to be a normal thing lately so I just sucked it up as being too early and waited for another signal. Long 500 shares 21.23 @ 10:03 and sold at 21.13 @ 10:05

I actually intentionally missed the next signal because the price action wasn't matching up with what I was seeing so I waited.  It pulled back again and I said that if it bounced higher I would get in on the next signal. I got the higher low and I entered the trade.  My target was the VWAP and when it hit it I took profits and said that I would wait to see how it reacted around the VWAP. Long 500 shares 21.08 @  10.20 and sold at 21.50 @ 10:31

It consolidated just below it and once it printed a green candle above the VWAP I entered the trade. My initial target was the upper band but it kept inching up and the price action was strong so I stayed in my position.  Once I got a reversal hammer candlestick I began to look more closely for signs of a reversal.  The next candle started going down and the volume went so I exited.  I was also scared this ticker may halt because of how fast it was moving so I was itching to sell anyway. Long 500 shares 21.63 @ 10:52 and sold at 23.14 @ 11:15

I went to lunch and when I came back I saw that the ticker was still above the VWAP so I was interested in it if it came down and bounced off of it.  It actually bounced above it and I used Ross's rule of waiting for a candle to make a new high before I entered.  It made a decent move up but did not get to the HOD.  I actually thought this ticker was done for the day.  Long 500 shares at 22.51 @ 12:01 and sold at 22.95 @12.16

I happened to look at the full chart and realized that it was forming an ABCD pattern, which is the 1st one I learned how to trade so I was interested again.  I waited for it to bounce and move above "C" before I took a position.  I entered then with a target of the upper deviation band.  It started weakening before it made it all the way up so I exited the trade.  It didn't have too much steam behind it but it was enough to make HOD.  Long 500 shares 23.06 @ 12:36 and sold at 23.63 @ 12:52

After all of this I ended up with $1685.00 before commissions.

Saturday, May 9, 2015

Why It's Good to Know Basic Candlesticking

I did not realize it until a few people pointed it out that I had close to an 80% win rate.  Personally I want to believe it is a fluke because in reality I am not that good.  I'm still learning. As I think about it, I have traded scared for a long time.  Just recently I have begun to trust my stops and allow trades to just work.  But I have always been a very technical person and managed my risk by not trading until I have a group of starts in alignment versus just a couple and using hard, tight stops.  I know to continue to grow and make a living at this I will need to take a little more risks and be a bit more aggressive.

When I first started trading, I was a fan of "clean" charts.  I did not use any technical indicators to assist me in making trades.  I watched the candlesticks, Level II, and the volume.  I was moderately successful. The patterns I learned were based on candlesticks forming it, but not true "candlestick patterns".  The fact is you could see those patterns using any type chart.  I only learned the basics about the candlesticks such as what a shaded and un-shaded candle meant as well as what the wicks meant.  This kept everything simple and clean which is what I needed when I first began learning how to trade.  As I progressed and began to develop my own identity as a trader, I began to learn other indicators to help me with identifying setups and when to enter and exit trades. (VWAP and RSI).  If you look at my charts now compared to when I first started sharing them, you will see they still look pretty clean. The reason is I need the cleanest view of the candlesticks as possible because I feel they tell me the rest of the story.

Just for reference, candlestick patterns are a form of technical analysis and charting used in the market. Candlesticks can be used in all time frames, from those looking for long term investments to those who swing or day trade.  The trick is to not get so engulfed in trying to learn all of the candlestick patterns that you lose everything else.  As you will see, I only use a few to aid me in my trading.  For me, I have learned that if I use candlesticks as part of vetting a setup for a potential trade I can decrease my market risk exposure. However, I will not rely on just candlestick patterns to make a final decision.  It is all part of the setup. If there is any interest I will do another blog looking at the ones I use more closely with more examples.  For instance, lets look at a chart of a ticker I traded yesterday:

$370 profit HMSY Long Stock by AverageJoeTradr

This ticker hit my reversal filter around 11:30.  I like to take these short if I catch them early enough but the RSI was below 25 and I typically stay away because there usually isn't enough room to get a decent profit before it stalls or begins to reverse. In this case it would have been a nice short, but I want to remained disciplined because most of the time it doesn't work out that well. I have made bad trades in the past by not being patient and trying to anticipate but not, I make sure I wait for the signal.  In this case I was looking for a reversal so on the 5 minute chart I want to see a doji making LOD, preferably a bullish hammer, then a nice green candle fully engulfing it:

I don't like the green candle after this hammer in this example because it would be too long for me to be comfortable trading. I couldn't get a tight enough stop to give me the proper risk/reward but this give you the idea what I am looking for.  So if you look at the hammer that formed on LOD around 2:10 on HMSY you'll see that the RSI is in the 15's, a nice green candle printed next, and I entered on the following green candle making my stop on the low of the previous candle at 15.13.  It was a little more than the $50 max but I will go up a little if the setups looks this good.  Now, had the previous green candle run up another .10 or .15, I would have not been able to take the trade or I would have had to use a lot smaller position size to get my risk in check.

My initial target on this reversal was 15.55-.60 to take profits, and snipe another move to the VWAP. It slowed in the high 15.30's and I almost took profits, but if I am going to be a trader, I need to stick to my plan. I moved my stop up to break even.  It was so strong when it made it to the 15.55 mark I just moved my stop up to .55 and held on for the move to the VWAP.  Worst case scenario I would get stopped out on my initial target, but still a good profit.  I held until I had to leave to go get my kids otherwise I would have raised my stop to the VWAP and held to the bell.

As you can see, in this trade I used the RSI to determine whether the ticker was a good candidate to short when it hit my filter and that it was below 20 indicating it was a strong reversal candidate.  I used the candlestick pattern, "bullish hammer reversal", to help verify that a reversal was setting up, and I used the VWAP to help me plan my targets.  Also, if a ticket is within .25 of the VWAP I won't take a reversal trade.  I will wait to see how it react around the VWAP and will execute a trade based on that, but that is not my typical strategy.  I also look at the price action (Level II and volume) and all these stars need to be in alignment before I take the trade.  Has to be a solid setup.  Do I slip up and take bad trades? YES! But I use journaling to help me prove to myself that it's best to wait for solid setups.  So what if I'm bored.  I just need to get back to my real job then!

($51) loss HZNP Long Stock by AverageJoeTradr

Ok, here is another trade I took Friday.  Looking for the same reversal setup.  I didn't get a doji on LOD, which is ideal, but I did get a bullish engulfing signal where you have a red candle fully engulfed by a green candle that printed after it.

I got that and a quick scan of the RSI and it was in the high 14's.  I am a good ways away from the VWAP so I get in.  In this case I forgot to line a couple of the stars up.  Number 1, there was no way I could get a decent stop because the green candle that printed had a .35 range. I entered the trade without figuring my stop.  As soon as I did after I took a position, I was stopped out.  I never checked the price action. The volume for me was too light for a late afternoon push.  Not an ideal trade.  I let the RSI and distance from the VWAP influence my decision without fully analizing the candlesticks or price action

($45) loss NVDA Short Stock by AverageJoeTradr

Another example of a mistake I made on Friday by not taking the candlesticks on the chart into account.  This hit my reversal screener about 12:00 and it looked like it was still in a downtrend.  It was close to the VWAP and the RSI was above 30.  Typically I can get a good .40 to .50 move on a short prior to it setting up to reverse.  I completely ignored the bullish hammer doji that printed and entered a short position because the next candle opened lower and it gave me a good tight stop on the high of the previous candle.  Before I knew it I was stopped out.  Then I looked at the candlestick pattern and there was that doji as big as day telling me no, I'm not going to fade anymore just yet.  Another losing trade that I would not have taken if I had followed my rules for vetting a potential trade.  I get excited when I have a couple of good winning trades and then I feel invincible. That's usually when I try and give it back to the market Gods!

I guess the most frustrating thing for me has been I started out with candlesticking being the basis for my trading which everything else was built around.  Everything I have learned and integrated into my trading has improved me and made me a better trader, but when I start crossing the line and leave out fundamental parts, I begin making mistakes.  I will have my trade vetting routine on a post-it on my monitor from now on.  I know I can't be right all of the time but at least I will be right by following my rules.  I can't control the ticker and what it does after that.  

Green Trading Everyone!

Wednesday, May 6, 2015

My, "Where The Hell's My Brain" Day

Well today was one of those days that new traders wish would never happen.  But, the reality is that these days have to happen so that we can grow, develop, and amend trading rules and routines that are paramount to our success as traders.  In hopes that I can understand for myself just what the hell happened today, I am going to try and talk it out in this blog.  I hope it makes sense because what I did today sure didn't.

I woke up at 6 as usual and turned on CNBC.  I heard some chatter on SDRL.  It ran up yesterday and it gapped up this morning.  I actually tracked it some yesterday for a possible trade.  After vetting it this morning and based on what it did yesterday and pre-market, I felt it would pop up the first minute, then sell off.  I expected a big move to short with it eventually hitting 14.50 before it had a good bounce.  I was surprised when it popped above pre-market high and it gave me a moment of pause, but when I saw that it was on light volume my confidence was back.  I shorted it at 15.20 and covered the first leg down at 14.85.  I entered and covered off of the 2 minute chart.  Before 11 I typically trade off of the 2 minute chart.  I had to leave my desk to go to guidance so I put in a buy (to cover) stop at 15.06, which was the high of the previous candle at that time.  When I got back it had just printed a green 2 min. candle at 10.15am so I started looking to cover.  I eventually covered at 10:30am and said I would keep it on watch for the next leg down.  I forgot I had a stop order in and I pulled up my scans and started looking for other possible trades.

When I looked at my charts again I saw that SDRL was pushing the VWAP so I figured it was close.  Then I got caught up watching PTBI even though I had no intention of trading it.  I was reading what people in chat were saying about it along with the people on Twitter.  By the time I realized what I was doing SDRL was at 14.70 so I said some expletives and started looking for another trade.  When I found one I brought up my platform and saw that I had an open position.  My P&L is hidden so it didn't just pop up that I was down big. Well I then realized that I forgot to cancel my stop and it bought me 500 shares at 15.07 and it was then 14.70.  I checked my P&L and I was down $185.  Not only did I miss the move I was waiting for since the open, I had given back profits from the 1st part of the trade.  I began looking for the "Oh Shit" handle or something to grab hold to.

So then came the question.  Do I get out or do I wait to see if it will reverse a little and give me at least 1/2 my losses back.  I got out immediately and did everything I could to keep my cool because I still had students in my class. I could not believe how stupid I was

Next time this happens I will shut it down because I had another trade I took that I made another mistake on.  If you look at the chart on CENX I highlighted a large green candle off of LOD at that time.  When a candle that large prints my rule it to wait for the next one because the stop would be too far away to have the proper r/r.  Also, it often falls right back to where it came from.  I think my mind was still mush because I did not vet this potential trade the way I normally do.  I just took it because it looked good and that is usually a recipe for getting stopped out

Looks like I am trying to keep my account at 4k this month!

Sunday, May 3, 2015

Trading Strategy and Weekly Update 4/27-5/1

Free Chat Monday in the Warrior Trading Chat Room!
Just click the name and come join us!

Hi everyone!

had a great trading week since I didn't have any students for 3 of the 5 days.  I have been trying to tweak my strategies and learn more about how they react in different marketing conditions.  My morning gapper strategy (gap ups) has been dead lately and I have been focusing on the gap downs out of the gate and the bottom reversals a little earlier than normal.  As I said before the market is ever changing and to be successful we would need to improvise, adapt, and overcome.  Improvise and adapt our strategies so that we can overcome the changing market conditions.

I'm glad this is happening now instead of next month because I know I will be a bag of emotions when reality hits that trading is my profession. I know trading requires you to learn everyday you are in the market.  The minute a trader thinks he or she has learned everything and feel that they have it figured out, they are done.  Being able to adapt my strategies and continue to make money has built more confidence in me that I am able to do this for a living.

A fellow trader shared a blog post with me that helped reiterate more some of the most important lessons that I have learned the last couple of years.  It also brought some new concerns to light for me.  I will be reading this a couple more times to get everything I can out of it. One thing that I have proven to myself is that I will put in the time needed to for me to be successful.  The blog post is located here:

Well, Let's get to my week.  I have wired out and opened up my Speedtrader account.  I still have a little ways to go to get it over 30k, which is how much I want in there before I start day trading with it, but I have proven that I can make decent profits with a 5k account so I will keep doing that.  However, this month I'm starting out with about $4300 since I took out enough to open my account.  I will keep trading conservatively because that has gotten me where I am today and I'm not changing that.

This is how my year looks as of May 1st.
                                                                         All Trades           Long Trades         Short Trades

Total Net Profit                                                         $29k                $22k                 $6,316.85
Gross Profit                                                         $31k                $25k                 $6,636.00
Gross Loss                                                         $2,627.46        $2,308.31         $319.15
Profit Factor                                                         11.94         10.72          20.79
Total Trades                                                         238                 191                  47
Percent Profitable                                                 80.25%         79.58%          82.98%
Winning Trades                                                         191                  152                  39
Losing Trades                                                          47                  39                  8
Avg Trade Net Profit                                                 $120.80          $117.45          $134.40
Avg Winning Trade                                                 $164.28          $162.78          $170.15
Avg % Gain                                                         2.3%                   2.36%           2.1%
Avg Losing Trade                                                 $55.90          $59.19           $39.89
Avg % Loss                                                         0.97%          0.96%           1.02%
Ratio Avg Win to Avg Loss                                         2.94                  2.75                   4.27
Largest Winning Trade                                         $1,230.00          $1,230.00          $510.00
Largest Losing Trade                                                $169.90          $169.90          $70.00
Largest Winner as % Gross Profit                         3.92%           4.97%           7.69%
Largest Loser as % Gross Loss                                 6.47%           7.36%            21.93%
Max Consec Winning Trades                                 14                     12                      10
Max Consec Losing Trades                                         3                     3                       3

Recaps of some important trades from the week

($42) loss LEAF Long Stock by AverageJoeTradr
$165 profit LEAF Long Stock by AverageJoeTradr

On the first entry I just flat entered before I had a signal.  I was at work, didn't want to miss the trade, and wanted to get all I could.  Perfect recipe for getting stopped out of a trade or if undisciplined, blowing up your account.  I was watching the 2 minute chart, against my rules after 12 because I trade off of the 5 minute chart after lunch to prevent me from making stupid entries like this.  I saw the candle taking off green and saw some big bidders on Level II.  As soon as I entered those bids disappeared and I looked for the oh shit handle because I knew it wouldn't end good.  Luckily I put a hard stop in, which I usually do when I'm at work.  

On the second trade I again entered off of the 2 minute chart but I waited for the second green candle to open higher than the previous one.  My initial target was 48.00 because a whole number usually has some resistance and a pullback usually happens.  When it hit 48 I entered a market order and it executed at 48.01.  My goal was to enter again after the pullback but one of my students ran into a problem and I had to leave.  When I got back I missed it and I was not going to chase.

The good thing about the trade was that I had a plan, stuck to it after the bad initial trade, and the ticker did exactly what I expected it to do based on what I have learned about this strategy.  It hit my screen about 12.15 and I immediately wanted to short it based on the chart and price action but the RSI was below 20 and that usually means the ticker is close to stalling out or reversing so I didn't short it.  Turns out I would have had a nice short for over a 1 point gain.  Next time I think I will continue to look at the price action and let that guide me.

Bottom line is that I need to stick to trading using the 5 minute chart after 12 to keep me from rushing in making bad trades.  If I miss some profit because I am waiting for it to set-up, oh well.  At least I won't be negative in the trade and I won't get fooled.  The trade still may not work out but at least I did what I needed to and stuck to my rules.

$330 profit SSYS Long Stock by AverageJoeTradr

This is a trade I made using my morning gap-down strategy that I have been working on.  This came about because my morning gappers have been few and far between so I started looking at reversal setups early.  I started looking at gap downs because Ross's scans on the Warrior Trading chat shows them as well as the gap-ups.  I put together the same scan I have for gap-ups but just changed the % to negative and I got the gap downs that meets my criteria.  Then I noticed that most would show up on my reversal screener.  So for the last couple of weeks I have been following these.  I just use the 1st 5 minutes to let them pick a trend and I will enter.  I will exit once I see a change in price action or it hits the goal I had for it going in.  Some have stronger moves than others but this one had a decent move.  I will short these if they go the other way but my biased is still long.

$255 profit AAL Long Stock by AverageJoeTradr
$144 profit DAL Long Stock by AverageJoeTradr
$240 profit AAL Short Stock by AverageJoeTradr
$111 profit DAL Short Stock by AverageJoeTradr

When I have been able to I have shorted the morning fade on these tickers and then longed the reversal.  For the most part they have been trading the same way for the past few weeks.  No strategic set-up, I have just been trading these tickers on the moves they have been consistently making and verifying it with the price action.  They first hit my eye because they were hitting my reversal screener early and I started shorting them before they reversed.  I know they will eventually quit what they are doing but like any strategy, I will trade it until it stops working.