Trading Gaps and Breakouts (Stocks)

APCC.gif


[09:47] <Brandon> ok we have APCC which is fairly similar to SONE
[09:47] <Brandon> as I said there you want to find something that works for you and stick to that
[09:47] <Brandon> I think that is one of the most valuable things you will learn here
[09:47] <Brandon> we are not all over the map doing 10,000 things
[09:47] <Brandon> Ivica and I tend to be doing gaps and breakouts
[09:47] <Brandon> I also do some flags
[09:48] <Brandon> and Toni tends to deal with concrete support and resistance points as well as pheonix and avalanche patterns
[09:48] <Brandon> when you have the same thing over and over and over again
[09:48] <Brandon> it should be easier to pick up
[09:48] <Brandon> and I think its good to just see the discipline of doing the same thing over and over
[09:48] <Brandon> even when its boring
[09:48] <Brandon> so here is APCC
[09:49] <Brandon> we have a nice large gap up on the daily
[09:49] <Brandon> and remember the bigger the gap the better
[09:49] <Brandon> but you dont want to buy right away
[09:49] <Brandon> you want it to rest
[09:49] <Brandon> and in this case we did get a nice rest in APCC
[09:49] <Brandon> it went sideways in a base for about 6 minutes before breaking above our buy price of 19.75
[09:50] <Brandon> it then did what we want to see
[09:50] <Brandon> and that is that it went up for us pretty quickly
[09:50] <Brandon> and allowed us to comfortably take our profits into the 20.30 area for a nice gain
[09:50] <Brandon> but you can see the setup is the same
[09:50] <Brandon> nice gap up
[09:50] <Brandon> base
[09:50] <Brandon> breakout
[09:50] <Brandon> you can see the same thing on CI
[09:51] <Brandon> we had this above $55s
[09:51] <Brandon> and toook about $1 on that
[09:51] <Brandon> one thing that I want to make clear to you guys
[09:51] <Brandon> I heard this on CI
[09:51] <Brandon> "Isnt that overbought?"
[09:51] <Brandon> you are traders
[09:51] <Brandon> there is no such damn thing as overbought or oversold
[09:52] <Brandon> it does not occur in the market ever
[09:52] <Brandon> just forget about it
[09:52] <Brandon> it does happen of course
[09:52] <Brandon> but for your purposes it does not
[09:52] <Brandon> ok the strongest stocks are going to be up too damn much to go up more
[09:52] <Brandon> but they always do
[09:52] <Brandon> the weakest stocks are going to be down too damn much to go down more
[09:52] <Brandon> but they always do
[09:53] <Brandon> overbought/oversold is going to cost you more money then anything else in terms of missed trades
[09:53] <Brandon> and being an ass and trying to short the strongest stock on the board coz its up too much
 
Quote from Brandonf:

there is no such damn thing as overbought or oversold
More...

This is not quite true. The "no such damn thing" part has to do with what OB and OS have come to mean. Originally, they meant that buying or selling was exhausted, such as during buying or selling climaxes. Over time, however, the meaning became twisted into indicator readings, e.g., stochastics. The ideas of OB and OS really have nothing to do with what these indicators measure.

Incidentally, good to have you back :p
 
Quote from dbphoenix:



This is not quite true. The "no such damn thing" part has to do with what OB and OS have come to mean. Originally, they meant that buying or selling was exhausted, such as during buying or selling climaxes. Over time, however, the meaning became twisted into indicator readings, e.g., stochastics. The ideas of OB and OS really have nothing to do with what these indicators measure.

Incidentally, good to have you back :p
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I would tend to agree with you. I also use an exchaustive move to clear out my positions. I guess the point I was trying to make is geared more towards beginners who see something is up a bit more on the day then they expect it should be and then assume it is overbought. Therefore, it should not be bought, and purhaps it is a short.

Brandon
 
Quote from Brandonf:



I would tend to agree with you. I also use an exchaustive move to clear out my positions. I guess the point I was trying to make is geared more towards beginners who see something is up a bit more on the day then they expect it should be and then assume it is overbought. Therefore, it should not be bought, and purhaps it is a short.

Brandon
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I guess you'd have to go back to the fifties or sixties to determine just when this OB/OS stuff got attached to indicator readings since that's largely when mathematically-derived indicators took hold. And it's unfortunate, because the concepts of OB/OS are very handy.

But you have to have some familiarity with how price and volume relate to each other and to S/R. It's a lot easier just to see whether whatsit is over 70, even though that really has nothing to do with what one wants to know.
 
[13:18] <Brandon> the bottom chart on this is the daily of CVX
[13:19] <Brandon> the top is the 15 minute chart
[13:19] <Brandon> you can see that on the daily we had a trap in effect off the open today
[13:19] <Brandon> a trap occurs when during yesterdays action a
[13:19] <Brandon> a stock opens at or very near its high

[13:19] <Brandon> and then closes at or very near its close
[13:19] <Brandon> it shows a large amount of selling going on
[13:19] <Brandon> and its even better if this occurs on high volume such as it did in CVX
[13:19] <Brandon> then today
[13:20] <Brandon> you will see the stock open up significantly higher
[13:20] <Brandon> and at any point when it takes out yesterdays high
[13:20] <Brandon> that sets off the trap
[13:20] <Brandon> the trap occurs beause everyone who sold yesterday or sold short is under water now
[13:20] <Brandon> they feel stupid
[13:20] <Brandon> feel like they got screwed
[13:20] <Brandon> and a lot of times
[13:20] <Brandon> when people feel like that, they dont think
[13:20] <Brandon> panic sets in
[13:21] <Brandon> plans fly out the window
[13:21] <Brandon> and if you as a trader position yourself in these kind of places
[13:21] <Brandon> be the candy man so to speak
[13:21] <Brandon> a kind hearted sould giving them what they want
[13:21] <Brandon> your going to cash out on this panic
[13:21] <Brandon> CVX opened up and ran a bit
[13:21] <Brandon> which is not the play you want
[13:22] <Brandon> but it wore out and began to rest
[13:22] <Brandon> and did so by trading in a nice sideways base near the highs
[13:22] <Brandon> This is the resting that you want to see
[13:22] <Brandon> and when it breaks
[13:22] <Brandon> youve got two setups working for you
[13:22] <Brandon> a lot of emotion tied up in this even t
[13:22] <Brandon> and you are sitting with a trade you want to be in

 
Quote from Brandonf:


I am a big believer in what Richard Dennis said though as well, that you could print your entire method on the front pages of the NY Times and it would hardly matter, most people are not going to be disciplined enough to follow it.

Brandon
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That statement by Dennis is simply wrong. It doesn't matter if most people don't have the discipline to follow it, because there are lots of highly skilled and motivated professional traders who DO have the discipline, capital, and resources to test your method rigorously, and then trade it on huge size if it works.

The only exception is if your method would produce too small absolute profits (e.g. if the liquidity is not there to do institutional size) for them to bother with, or if there is some element of discretion which cannot be explained in a mechanical system. But even then, all it takes is one or two other traders to copy you, and your slippage will increase. You may still make profits, but not as much.

Just look at what happened to Dennis and the Turtles - their returns in the 1990s have degraded massively compared to their early success. Even the Turtles admit they have had to considerably change their methods to avoid the slippage and whipsaw problem. Do you see them publishing those changes? No, because they have learned the hard way that replicable mechanical systems *do* degrade once they are known.

If your method is good but mechanical and replicable, then publishing it can only harm you. I can't see any way it can help unless you want to become a vendor.
 
Brandon,

Have you ever measured the performance of your "intraday gap-breakouts" by what type of gap it was in the bigger picture?

I suspect that intraday breakouts off a gap would be much stronger on markets that are experiencing "break away" gaps vs. an "exhaustion" or "continuation" gap in the major underlying trend...

If this question was already answered then forgive me, for I have not taken the time to read this entire thread...

PEACE and good-speculation...
 
[09:36] This is the chart of NOVL which was alerted long from around 7.70 with profits taken into $8.00
[09:36] Everything I do pretty much falls into this gap setup with stocks
[09:36] I want to see a very large gap
[09:36] these large gaps are emotional
[09:36] people who are long are excited
[09:36] people who are short are upset
[09:37] and people who are not in are just pissed off they are not riding the train
[09:37] so it creates a nice mix of emotions
[09:37] which opens the door for a stock to move a lot
[09:37] Most gaps are going to fill in
[09:37] but if they do not
[09:37] that is always a strong signal that the stock is very strong
[09:37] and will continue to be strong
[09:37] you want to see some rest
[09:38] thing of it as running a race
[09:38] you can run a marathon today and purhaps win
[09:38] but if you run another one later in the day
[09:38] you are unlikely to win
[09:38] the stock needs to rest too
[09:38] and they do that very well by going sideways
[09:38] sometimes it only takes a few minutes
[09:38] sometimes it might take longer
[09:38] but you have to see this base
[09:38] a lot of people make a few mistakes
[09:39] they want to trade breakouts
[09:39] or they want to trade gaps
[09:39] but either setup all by themselves are not that great
[09:39] its when you combine the energy and emotion of the two
[09:39] you have something
[09:39] it creates a very powerful synergy
[09:39] and you can make a living off just a few trades a day
 

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