Margo's Swing Journal

Originally posted by Trend Fader


Just a warning here.. this is very dangerous type of trading.. Just because a stock is strong doesnt mean its getting ahead of itself. Take a look at those homebuilders the past few years. I just want the traders that read this thread to understand that if we get a multi month/year bounce most of the chart patterns Mango illustrates will just break their resistance. You really need to understand the broader market.. a big mistake is looking at these chart patterns isolated from broader market conditions.


-MIKE
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I think your caution is justified here Trend Fader. IF the market were to turn here, and that's a BIG if, but if it does then some of the relatively stronger stocks will likely be the leaders in the move. Most of these stocks are illustrating fairly strong characteristics, especially in the context of substantial, long lasting bear market that we've been in. These are the type of stocks that many people are looking to get long, ones that have been illustrating better relative strength, can't make new lows with the market, etc etc. But that's what makes a market.

OldTrader
 
Originally posted by OldTrader


I think your caution is justified here Trend Fader. IF the market were to turn here, and that's a BIG if, but if it does then some of the relatively stronger stocks will likely be the leaders in the move. Most of these stocks are illustrating fairly strong characteristics, especially in the context of substantial, long lasting bear market that we've been in. These are the type of stocks that many people are looking to get long, ones that have been illustrating better relative strength, can't make new lows with the market, etc etc. But that's what makes a market.

OldTrader
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Agreed. WHen the rally comes the momo hedgies/traders are gonna push the strong stocks to new 52 week highs.. because often they have more short interest than the one's near 52 week lows.

The pro's I know short the stocks near 52 week lows (usually on a bounce) and buy the 52 week highs (on a pullback). The other way around... is dangerous on a purely supply and demand situation.

Here is some logic behind my reasoning. Lets assume we rally from here.. the stocks near 52 week lows are really gonna pop because of short covering.. I doubt the value guys are gonna buy them because they are "cheap". Stocks near yearly lows are down for a reason.

The ones near 52 week highs have a better chance of an extended rally... shorts would cover (similar to the stocks making 52 week lows).. plenty of momo guys will buy high and sell higher (canslim traders after a follow through)... in addition these stocks have a good story behind them... and a stock like TTWO are trading near virgin territory.. up is the place of least resistance.

Final point.. i read a statistic that the biggest gap downs usually occur when stocks are on their way down.. not on the way up. So stocks above key Moving averages.. have a significant less chance of blowing up and vice versa. This makes sense.. stocks and business cycles trend.. when its good it gets great.. when its bad it gets worse. (homebuilders and tech .. are good examples.. trends last for a while they rarely whipsaw)

NOTE: everything I am refering to is all old basic supply/demand market knowledge.. nothing new.. its the way the markets work for years.


--MIKE
 
I'm not sure how you trade. The only point you made that made sense to me was your comment on the importance of understanding what type of market we're in. Sometimes, breakouts/breakdowns work......Sometimes, they don't. Sometimes, shorting objective resistance / buying objective support works........Sometimes, it doesn't. All I care about is what works NOW, and trading around objective S/R has worked all year.

If you've been buying breakouts the past 10 months, you've been buying a top 95% of the time. If you've been shorting breakdowns the past 10 months, you've been shorting into a temporary bounce 95% of the time. The point I want to make is your lower risk short/long entries are going to continue to be shorting/buying at resistance/support as opposed to breakdowns/breakouts. Blowing out support is without a doubt a big negative but that's when things get whippy as heck which means higher risk........same as blowing through resistance. As we all know, there are two way to trade any market. The difference between a rookie and a pro is that a rookie waits for the reversal while the pro takes his profits as the reversal is taking place.

So, when will my strategy change? When it doesn't work anymore. I is where I is. I trade what I see and not what I think.

By the way, I'm still going to short HLYW on a move up to the stick highs. Good luck on buying it on the breakout.

Originally posted by Trend Fader
Margo's strategy is simple... its shorting resistance and fading stocks near their relative highs.

In my opinion this is a good strategy soley based on whether someone really understands market conditions. In a bear market this strategy is great.. but in a choppy or bull market.. you will get toasted. The real trick is understanding what type of market you are in.

Personally, the easiest strategy that does not require too much of general market sentiment is trading the pulbacks in the direction of the stock's strong primary trend. This is because 70%+ of stocks will follow the broader market.. so in a bear market the majority of your trades would be finding the trendiest stocks... and shorting the bounce of lows.. and vice versa in a bull market.. The setup itself.. is a by product of the broader markets...

However, what Margo is doing.. is not.. thats why I think its more dangerous.. In my experience these types of strategy do not whether any type of storm.. so my advice to Margo is... keep doing what you do.. until it doesnt work anymore... and when the time comes (maybe not for another few years) be ready to buy the trendline breaks.. or else you will get destroyed.

For example.. look back prior to 2000 and see what would of happened using Margo's strategy. Then look back prior 2000 and see what would of happened if you were buying the pullbacks off all the stocks making higher highs.. After 2000 the majority of your trades would of already been shorting the lows...

just my opinion,

--MIKE
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Nitro,

I'll be sure to keep that in mind. As for me, I'll be a buyer at the gap.

Originally posted by nitro

I am not a swing trader nor a chartist, but I would be looking to go long slightly above where you are looking to go short.

nitro
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TrendFader,

This is an excellent opportunity for you to post some setups of your own. Feel free to use this thread. I'm always anxious to learn something new.

Originally posted by Trend Fader


Just a warning here.. this is very dangerous type of trading.. Just because a stock is strong doesnt mean its getting ahead of itself. Take a look at those homebuilders the past few years. I just want the traders that read this thread to understand that if we get a multi month/year bounce most of the chart patterns Mango illustrates will just break their resistance. You really need to understand the broader market.. a big mistake is looking at these chart patterns isolated from broader market conditions.


-MIKE
More...
 
Margo,

Good points, I respect what you are saying but i don't think you understand one thing. There is more to trading than breakouts and breakdowns.

By nature when I swing trade, I am a trend follower.. so I look for stocks that trend strongly, and have good persistency. Now.. assuming I was to go short a stock.. my setup would be a stock in sharp downtrend bouncing off a low. I wait for it to bounce in the opposite direction of the primary trend.. then I would short it perhaps as it makes a daily lower low or signals ( i have a technique I use.. which gives me an edge) its bounce is coming to an end. To get a basic idea.. its not too far away from Landry's botwie strategy (tradingmarkets.com).. but mine is more filtered and modified. Just so you understand.. its shorting the stock as soon as you have confirmation the bounce has ended.. as opposed to waiting for the stock to crack and breakdown into a new yearly low.

So.. I dont buy or sell any breakdowns.. i fade the bounce. Look at the chart attached to the post. The chart shows ACTL in a downtrend. As a trader I look to fade that bounce.. just so happened to be a resistance which made it a bit easier to get an optimal entry to fade the bounce. Notice there is no breakdown or breakout.

Now.. I refuse to share any setups in realtime with anyone for one simple reason. I know my system works for me.. and money mgmt.. plays a huge factor besides the setup and entry.

Assuming I were to show a few setups that were awful it would damage my moral. I am not a robot just a regular human. I refuse to do anything that would jeopardize the way I feel about myself. Any professional trader would never randomly share his trades on message boards.. unless he had ulterior motives... I need to maintain my edge and wont risk being humiliated on a board. If I show you 20 setups that are profitable does that mean I am a great trader.. what if all 20 were awful?? Unless I showed 100+ setups than we can make a truer assessment.

hope you understand,
-MIKE
 
here is the file



I am having problems with the pic.. Just draw a trendline of ACTL from 5/17/02 to 8/22/02. I would go short at 8/23/02. I would not short the breakdown to a new low on 9/3/02.. although it happened to still work. I basically shorted the stock as it reached its resistance trendline. The difference between this approach is that the stock was extremely weak near its multi year lows.. and I was betting the bounce was just another dead cat (short covering) bounce..


--MIKE
 
Trend,

I understand and realize you have your own style. Fact is, there is NO wrong or right. Something may work for me that doesn't for you. On the other hand, what works for you may not for me.

There is no question that our styles are different. I pulled the ACTL chart when you mentioned it. Other than buying key support and an occasional breakout (CCCG), those types of setups are the only one's I've traded for the past year from the long side. Granted, I've treated them as nothing more than a day or three trade, but I've had a lot of luck with them. Again, it's real simple in what I look for. First, I look at the 8 & 50 MAs. I want the 8 to be curled UNDER the price and the more separation between the price and the 50 the better. Secondly, I want to see a higher low. In other words, I would have scalped this for a long if I'd have seen it.

Good luck in your trading.
 

Attachments

Here is one similar to ACTL that I did trade.....notice the curling action of the 8 and the higher low. Again, nothing more than a day or three trade but pretty low risk if you use the 8 as a stop. When I start seeing hundreds of these lined up (like last October), I'll put the bear suit in the closet.
 

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