Trading Gaps and Breakouts (Stocks)
- Thread starter Brandonf
- Start date
Attatched is the five minute chart of NEM from a trade that I gave in the chatroom today.
[08:36] <brandon> 08:36:08 DAY TRADE: (Based on daily and intraday setups. Hold = sev. min. to sev. hrs. Gen. Guide: Partials at S/R as risk zone is covered. B/E on rest until target at next S/R. Closed by EOD.) BUY SETUP NEM above 27.50. Stops under 27.35
[13:46] <brandon> one thing to always look for is multiple reasons (setups) for doing something.
[13:47] <brandon> The more things you have the better your chances of being successful on the trade
[13:47] <brandon> first things on this one is the daily chart
[13:47] <brandon> though not a setup we deal with very often here
[13:47] <brandon> a failed 20 day high or low can be a very significant even
[13:47] <brandon> event
[13:47] <brandon> and setup very nice trades
[13:48] <brandon> the reason is the same that so many other things setup nice trades
[13:48] <brandon> people are stuck
[13:48] <brandon> and when they stuck they panic
[13:48] <brandon> the most common breakout system in use by traders around the world is to buy 20 day highs and sell 20 days lows
[13:48] <brandon> so when you get one of those that reverses sharply on those people
[13:48] <brandon> they are going to take stops
[13:48] <brandon> most people are not very good at taking stops
[13:48] <brandon> so sometimes you can get it moving real nice when they panic
[13:49] <brandon> also as you can see on the daily chart
[13:49] <brandon> it was right in the area of the 200 day simple moving average
[13:49] <brandon> this is almost always an important support area
[13:49] <brandon> now go to the intraday
[13:49] <brandon> trade big timeframes
[13:49] <brandon> enter on small ones
[13:49] <brandon> so we have the gap up
[13:49] <brandon> and it holds for the first several minutes of the day
[13:50] <brandon> Gold was showing very good early strength and was the leading sector in the market
[13:50] <brandon> so more reasons to buy
[13:50] <brandon> as it breaks its first pivot
[13:50] <brandon> that setup the long trade above 27.50
[13:50] <brandon> The pivot was 27.48, but 27.50's would be the resistence in this case coz people like to put orders in at 25's, 50's and 00's
[13:50] <brandon> so once it takes out that its pretty much confirming that its doing what we want it to do
[13:50] <brandon> and tada
[13:50] <brandon> we have a trade
[13:51] <brandon> then for the end daytrade target on this one
[13:51] <brandon> I dont have this chart up
[13:51] <brandon> but the 200ma on the 15 minute chart was at 27.85
[13:51] <brandon> so for daytraders that was the ultimate target
Brandon
[08:36] <brandon> 08:36:08 DAY TRADE: (Based on daily and intraday setups. Hold = sev. min. to sev. hrs. Gen. Guide: Partials at S/R as risk zone is covered. B/E on rest until target at next S/R. Closed by EOD.) BUY SETUP NEM above 27.50. Stops under 27.35
[13:46] <brandon> one thing to always look for is multiple reasons (setups) for doing something.
[13:47] <brandon> The more things you have the better your chances of being successful on the trade
[13:47] <brandon> first things on this one is the daily chart
[13:47] <brandon> though not a setup we deal with very often here
[13:47] <brandon> a failed 20 day high or low can be a very significant even
[13:47] <brandon> event
[13:47] <brandon> and setup very nice trades
[13:48] <brandon> the reason is the same that so many other things setup nice trades
[13:48] <brandon> people are stuck
[13:48] <brandon> and when they stuck they panic
[13:48] <brandon> the most common breakout system in use by traders around the world is to buy 20 day highs and sell 20 days lows
[13:48] <brandon> so when you get one of those that reverses sharply on those people
[13:48] <brandon> they are going to take stops
[13:48] <brandon> most people are not very good at taking stops
[13:48] <brandon> so sometimes you can get it moving real nice when they panic
[13:49] <brandon> also as you can see on the daily chart
[13:49] <brandon> it was right in the area of the 200 day simple moving average
[13:49] <brandon> this is almost always an important support area
[13:49] <brandon> now go to the intraday
[13:49] <brandon> trade big timeframes
[13:49] <brandon> enter on small ones
[13:49] <brandon> so we have the gap up
[13:49] <brandon> and it holds for the first several minutes of the day
[13:50] <brandon> Gold was showing very good early strength and was the leading sector in the market
[13:50] <brandon> so more reasons to buy
[13:50] <brandon> as it breaks its first pivot
[13:50] <brandon> that setup the long trade above 27.50
[13:50] <brandon> The pivot was 27.48, but 27.50's would be the resistence in this case coz people like to put orders in at 25's, 50's and 00's
[13:50] <brandon> so once it takes out that its pretty much confirming that its doing what we want it to do
[13:50] <brandon> and tada
[13:50] <brandon> we have a trade
[13:51] <brandon> then for the end daytrade target on this one
[13:51] <brandon> I dont have this chart up
[13:51] <brandon> but the 200ma on the 15 minute chart was at 27.85
[13:51] <brandon> so for daytraders that was the ultimate target
Brandon
Today was the first time in forever that I had more trades in the SP (3) then in stocks (2). The two stocks where gaps (NEM and OVER) +I did not alert OVER in the room, just had mentioned it as something to watch, one of our other moderators then alerted it so I did not, im not sure what the specs of his trade where+
First trade of the day I went short the SP and managed to lose 1.25 on it.
Next trade was a bear flag on the fifteen minute chart and a reversal on the 2. Got in at 844.25 and out at 841.75.
Last trade was on the hourly bullflag long from 840.25 to 842.5. Here is that alert and an explanation of that trade taken from the room. Later I will do one to show OVER too. It was a trap and those tend to be the best of all gap setups, so its worth knowing.
[14:11] <brandon> 14:11:03 SCALP TRADE: (Based on intraday setups. Hold = sev. min. - hr. Momentum trade. Exit at S&R or if it doesn't move quickly enough.) BUY SETUP ES above 840. Stops 839.
[14:36] <brandon> First thing is
[14:36] <brandon> I think its very important you seperate your trades from your entries
[14:36] <brandon> you have to think of them as different animals entirely
[14:36] <brandon> you will find a trade in a larger timeframe (15 minutes and up)
[14:36] <brandon> and entries to that trade on the smaller timeframes (5 and under)
[14:37] <brandon> Toni may think of this differently, we have never really talked about it
[14:37] <brandon> but thats how I approach it
[14:37] <brandon> so looking at this hourly chart
[14:37] <brandon> Im searching for a trade
[14:37] <brandon> the most obvious trade here is going to be a long
[14:37] <brandon> why is that?
[14:37] <brandon> trend is up right
[14:38] <brandon> so when dealing with an uptrend, the trend is your friend, be a lover not a fighter
[14:38] <brandon> all that good jazz
[14:38] <brandon> so the play will be longs
[14:38] <brandon> now you dont just but at any point
[14:38] <brandon> if you did that
[14:38] <brandon> there has been a lot of downside between 853 where the SPs topped out to their current location
[14:38] <brandon> so you gotta find a setup
[14:39] <brandon> in this case we have a pretty clear trend in place
[14:39] <brandon> so the best setups are probably going to happen on continuation patterns
[14:39] <brandon> that is flags, penents etc
[14:39] <brandon> as it pulls down to the support at the 20ema on this hourly chart
[14:39] <brandon> you can see it starts to hold its own
[14:39] <brandon> doing better
[14:39] <brandon> so this is giving a bit of a signal
[14:39] <brandon> so now your thing is that you need to go over to the smaller timeframe
[14:40] <brandon> the first potential entry was when it pushed down to new lows by .5 SP points
[14:40] <brandon> just barely
[14:40] <brandon> and then it immediatly took out that prior swing low
[14:40] <brandon> thats a trader vic 2b buy setup in that timeframe
[14:40] <brandon> but we missed that
[14:40] <brandon> and thats ok
[14:40] <brandon> you can miss things and the market is usually kind if you are patient enough to wait
[14:40] <brandon> so just start to watch this chart
[14:40] <brandon> and then the setup comes in
[14:41] <brandon> after the 2b it goes up over the last pivot high
[14:41] <brandon> and then it starts to pullback
[14:41] <brandon> but the pullback is very shallow
[14:41] <brandon> and mostly just some sideways action
[14:41] <brandon> so now we are getting the first criteria of a new uptrend
[14:41] <brandon> a higher low followed by a higher high being set
[14:41] <brandon> so then you have your trade
[14:41] <brandon> something to remember when you look at things
[14:41] <brandon> and are going for your entries etc
[14:42] <brandon> the trends will always change in a smaller timeframe before they do in a bigger one
[14:42] <brandon> if you can get in on the smaller timeframe your risk is always the smallest
[14:42] <brandon> but your potential is still in the big chart
[14:42] <brandon> not the little one
[14:42] <brandon> so this is the best way to stack things in your favor
[14:42] <brandon> right that down if you have to
[14:42] <brandon> but always remember it
Thats it for now. Sorry for the excessively long post.
Brandon
First trade of the day I went short the SP and managed to lose 1.25 on it.
Next trade was a bear flag on the fifteen minute chart and a reversal on the 2. Got in at 844.25 and out at 841.75.
Last trade was on the hourly bullflag long from 840.25 to 842.5. Here is that alert and an explanation of that trade taken from the room. Later I will do one to show OVER too. It was a trap and those tend to be the best of all gap setups, so its worth knowing.
[14:11] <brandon> 14:11:03 SCALP TRADE: (Based on intraday setups. Hold = sev. min. - hr. Momentum trade. Exit at S&R or if it doesn't move quickly enough.) BUY SETUP ES above 840. Stops 839.
[14:36] <brandon> First thing is
[14:36] <brandon> I think its very important you seperate your trades from your entries
[14:36] <brandon> you have to think of them as different animals entirely
[14:36] <brandon> you will find a trade in a larger timeframe (15 minutes and up)
[14:36] <brandon> and entries to that trade on the smaller timeframes (5 and under)
[14:37] <brandon> Toni may think of this differently, we have never really talked about it
[14:37] <brandon> but thats how I approach it
[14:37] <brandon> so looking at this hourly chart
[14:37] <brandon> Im searching for a trade
[14:37] <brandon> the most obvious trade here is going to be a long
[14:37] <brandon> why is that?
[14:37] <brandon> trend is up right
[14:38] <brandon> so when dealing with an uptrend, the trend is your friend, be a lover not a fighter
[14:38] <brandon> all that good jazz
[14:38] <brandon> so the play will be longs
[14:38] <brandon> now you dont just but at any point
[14:38] <brandon> if you did that
[14:38] <brandon> there has been a lot of downside between 853 where the SPs topped out to their current location
[14:38] <brandon> so you gotta find a setup
[14:39] <brandon> in this case we have a pretty clear trend in place
[14:39] <brandon> so the best setups are probably going to happen on continuation patterns
[14:39] <brandon> that is flags, penents etc
[14:39] <brandon> as it pulls down to the support at the 20ema on this hourly chart
[14:39] <brandon> you can see it starts to hold its own
[14:39] <brandon> doing better
[14:39] <brandon> so this is giving a bit of a signal
[14:39] <brandon> so now your thing is that you need to go over to the smaller timeframe
[14:40] <brandon> the first potential entry was when it pushed down to new lows by .5 SP points
[14:40] <brandon> just barely
[14:40] <brandon> and then it immediatly took out that prior swing low
[14:40] <brandon> thats a trader vic 2b buy setup in that timeframe
[14:40] <brandon> but we missed that
[14:40] <brandon> and thats ok
[14:40] <brandon> you can miss things and the market is usually kind if you are patient enough to wait
[14:40] <brandon> so just start to watch this chart
[14:40] <brandon> and then the setup comes in
[14:41] <brandon> after the 2b it goes up over the last pivot high
[14:41] <brandon> and then it starts to pullback
[14:41] <brandon> but the pullback is very shallow
[14:41] <brandon> and mostly just some sideways action
[14:41] <brandon> so now we are getting the first criteria of a new uptrend
[14:41] <brandon> a higher low followed by a higher high being set
[14:41] <brandon> so then you have your trade
[14:41] <brandon> something to remember when you look at things
[14:41] <brandon> and are going for your entries etc
[14:42] <brandon> the trends will always change in a smaller timeframe before they do in a bigger one
[14:42] <brandon> if you can get in on the smaller timeframe your risk is always the smallest
[14:42] <brandon> but your potential is still in the big chart
[14:42] <brandon> not the little one
[14:42] <brandon> so this is the best way to stack things in your favor
[14:42] <brandon> right that down if you have to
[14:42] <brandon> but always remember it
Thats it for now. Sorry for the excessively long post.
Brandon
Quote from vladiator:
I'm a PhD student, publications are a GOOD thing to have. The reason why it "needs" to be published is b/c it addresses how the confluence of microstructural and behavioural aspects (e.g. overreaction to private information and underreaction to public info (see Hong and Stein, Journal of Finance 1999 or Daniel, Hirshleifer and Subrahmanyam, JF 1998)) can lead to pockets of inefficiency that appear to be exploitable by mechanical trading rules.
It will be an academic finance journal, which one and what author - for privacy reasons, I'd rather not say at this point.
If its your study and you dont want to reveal who you are, or if you are a referee then yes, its ok. If its neither of these cases then I'm not sure why you would want to withhold the information .... When I was very active publishing these types of things were commonly discussed: they were called pre-prints and the information was freely discussed prior to publication in major journals.
Let us know the details when the study is accepted for publication ...
Today at the open OVER gapped down very sharply and set up one of the better types of gaps out there. I call them a trap, simply because a lot of people are trapped in the stock and when that happens they tend to act without much of a plan and panic.
A trap occurs when a stock on the prior day has a large green candle then today it opens under the low of that bar. In the case of OVER it was not exactly because the green candle occured the day before yesterday, but with yesterday having also been an up day the principle still basically applies. When you have this setup then the stock is a short as soon as it breaks under its first few minutes low, or in a buy above its first few minutes high.
Hope everyone has a nice evening and a good trading day tomorrow. Nite.
Brandon
A trap occurs when a stock on the prior day has a large green candle then today it opens under the low of that bar. In the case of OVER it was not exactly because the green candle occured the day before yesterday, but with yesterday having also been an up day the principle still basically applies. When you have this setup then the stock is a short as soon as it breaks under its first few minutes low, or in a buy above its first few minutes high.
Hope everyone has a nice evening and a good trading day tomorrow. Nite.
Brandon
[11:22] <brandon> ok here is the five minute chart of the XLNX trade we took
[11:22] <brandon> on the open it had a very strong gap
[11:22] <brandon> but it could not hold it at all
[11:22] <brandon> almost immediatly it showed weakness and started to fill it in
[11:22] <brandon> it then fell very sharply down to the gap area
[11:22] <brandon> as I sorted the stocks
[11:22] <brandon> it was one of the weakest on the Nasdaq
[11:23] <brandon> and also the weakest major semi conductor stock
[11:23] <brandon> though the semi index itself was holding up well
[11:23] <brandon> and was actually the second leading sector of the day
[11:23] <brandon> it was starting to form a 15 minute avalanche
[11:23] <brandon> and given that the rest of the market was showing a lot of weakness I put a good degree of faith that the setup would go there as well
[11:24] <brandon> and the plan would be then of course then when it went
[11:24] <brandon> I would want to be in the weakest stock in the sector
[11:24] <brandon> as that one generally has the most selling interest and will fall the most when the sector goes
[11:24] <brandon> so looking for the setup
[11:24] <brandon> we got one in the form of the base at the lows
[11:24] <brandon> also right under the 20ema which it could not break
[11:24] <brandon> and was showing itself as R
Brandon
PS, here is the alert.
[09:30] <brandon> 09:30:24 DAY TRADE: (Based on daily and intraday setups. Hold = sev. min. to sev. hrs. Gen. Guide: Partials at S/R as risk zone is covered. B/E on rest until target at next S/R. Closed by EOD) SHORT SETUP XLNX under 22.25. Stops above 22.42
[11:22] <brandon> on the open it had a very strong gap
[11:22] <brandon> but it could not hold it at all
[11:22] <brandon> almost immediatly it showed weakness and started to fill it in
[11:22] <brandon> it then fell very sharply down to the gap area
[11:22] <brandon> as I sorted the stocks
[11:22] <brandon> it was one of the weakest on the Nasdaq
[11:23] <brandon> and also the weakest major semi conductor stock
[11:23] <brandon> though the semi index itself was holding up well
[11:23] <brandon> and was actually the second leading sector of the day
[11:23] <brandon> it was starting to form a 15 minute avalanche
[11:23] <brandon> and given that the rest of the market was showing a lot of weakness I put a good degree of faith that the setup would go there as well
[11:24] <brandon> and the plan would be then of course then when it went
[11:24] <brandon> I would want to be in the weakest stock in the sector
[11:24] <brandon> as that one generally has the most selling interest and will fall the most when the sector goes
[11:24] <brandon> so looking for the setup
[11:24] <brandon> we got one in the form of the base at the lows
[11:24] <brandon> also right under the 20ema which it could not break
[11:24] <brandon> and was showing itself as R
Brandon
PS, here is the alert.
[09:30] <brandon> 09:30:24 DAY TRADE: (Based on daily and intraday setups. Hold = sev. min. to sev. hrs. Gen. Guide: Partials at S/R as risk zone is covered. B/E on rest until target at next S/R. Closed by EOD) SHORT SETUP XLNX under 22.25. Stops above 22.42
Im still giving XLNX a little bit of room ( prints at 22.46 wil get me out) but as I look at the trade and the entries I have taken in it (both shown here) and the fact that I keep watching the thing, I think I need to get the idiot stamp out.
Why?
I dont really mind stopping out, thats just a part of trading and everyone does it. But, one of my worst tendancies and habits is that after a few good days (Ive had my best 3 day strentch in some time) I start think I'm a lot smarter then anyone else would give me credit for being. Then I tend to break my rules a few times until Ive sufficiently been smacked by the maket gods or Toni (just depends on who gets to me first).
With XLNX shorting it generally does not fit into my plan. Right now the Semi conductor sector is still the second strongest of all the major groups (Natural Gas is first), yet I have continued to watch a semi stock to short based upon my "feeling" that the semi's will crack even when the indication is they don't want too. Taking a short position in a leading up sector (even in a "weak stock") in that sector is generally a poor idea, especially given that there are already so many things behaving well.
So anyway, provided XLXN does stop me out then I will be 2 for 5 on the day and down a tad.Really not very expensive, just kinda stupid. Back to my corner and to see if I can be rewarded for behaving like a moron.
Brandon
Why?
I dont really mind stopping out, thats just a part of trading and everyone does it. But, one of my worst tendancies and habits is that after a few good days (Ive had my best 3 day strentch in some time) I start think I'm a lot smarter then anyone else would give me credit for being. Then I tend to break my rules a few times until Ive sufficiently been smacked by the maket gods or Toni (just depends on who gets to me first).
With XLNX shorting it generally does not fit into my plan. Right now the Semi conductor sector is still the second strongest of all the major groups (Natural Gas is first), yet I have continued to watch a semi stock to short based upon my "feeling" that the semi's will crack even when the indication is they don't want too. Taking a short position in a leading up sector (even in a "weak stock") in that sector is generally a poor idea, especially given that there are already so many things behaving well.
So anyway, provided XLXN does stop me out then I will be 2 for 5 on the day and down a tad.Really not very expensive, just kinda stupid. Back to my corner and to see if I can be rewarded for behaving like a moron.
Brandon