Watchlist 5/24

TSLA

Made its move to the ma200 and failed there today. I am expecting a continuation short on a green to red style play. I am leaning short with this one. If however market is strong watch for perhaps a strong open maybe on a gap down and long on the pullback. Let early morning price action be your guide.

FB

Another one that on first glance looks like a great short potential on a G/R style play. But if you notice price is right at support. Price action early on will be key. If we hold this support and show strength early on this could shoot up. I am leaning for a short on FB  though. 

VRX 

Another one that has support nearby but I like the idea of a short here on a G/R play. Could also slightly gap down and push lower as it has room to go. I would have to see bullish price action here to even begin to consider this one for a long. 

SCTY 

This still wasn’t the day for SCTY to fall. The r/g move was strong and this one closed nicely. Any gap down here should seen as a r/g set up as I am not ready to short it on a gap down. Maybe the ma50 will be a nice short spot if price action says so. I personally would not long this anymore as we are well into the move now. Stay disciplined!

JBLU 

INFN 

Not sure if the move will happen tomorrow but looking for a R/G mover in this one. This gap on the daily could be closed sooner or later. 12.81 is area of interest here. 

Watchlist 5/23

Hello guys! I'm going to start to post my daily watch list with a brief description of what i expect to happen and perhaps even a contrarian plan just in case. I will try and keep my watch to between 6-10 stocks

VRX--

This is a stock that could really go either way. One idea I have is for the R/G move pushing through 28 which is a level of interest. For a short I would love to see it push below 27.20 and hold under that level. That could set up a nice short trade. Great trader either way lately. 

AAPL---

This is a beautiful chart and my bias here is pretty much long all the way. It would a pretty strong gap down to make me change this bias. I am expecting a R/G type of trade here, Respecting the 94.75-94.80 area. We may also gap up slightly and push out of the open. Various scenarios but mostly a long trade to me. Unless something happens to make me change my mind. 

FIT---

Also a great long idea here. Expecting a R/G move out of the gate. Remember go by what the daily chart tells you. Even if you see a short set up in the early morning this could very well set up a later r/g move. A very bearish market day would have to occur for me to change my mind

LABU---

LABU is a chart I like quite a bit , even though we are right at the ma50 on the daily. I expect a long either on a R/G move or on a slight push out of the open in which I would wait for the pullback to enter long.  Although I am not looking to take a short here if we gap down and hold below 28.90 area this could be a potential daytrade short. 

ACAD---

In my opinion this is reaching the slightly extended area. I am not looking to long here as it is approaching price resistance and I would prefer to see what occurs around that area. You can make the case for a R/G long until it reaches resistance over 35 but I prefer to wait for a reversal once we get to that zone. Looking for a break and backside of the move to enter

SCTY---

Here we have a potential day 3 approaching. We are not yet overextended but not far from an area of resistance, I like the R/G scenario here. I want to see this stock open red for a long trade. If we do not open red and gap up I will be once again watching to see what price action tells me throughout the day. We may also see a stronger pullback at the open followed by a r/g move later on. 21.30 is an area of interest to me. 

X To short or not to Short

You're scanning on a beautiful Wednesday evening in Miami and you run across X. You look at the chart and see that it has had 2 red day. What should you expect for day 3? Should you expect a green to red move, should you prepare yourself for a gap and go or should you sit back and wait for the reversal. Truth me told these "looks" can turn out to be some of the most challenging type of plays. You are kind of torn both ways. It's the type of play in which your discipline will truly be tested. For today let us take a look at X. Here is the daily

Disregard the green candle. I was looking at it Wednesday night and this has Thursday included. Having said that I saw that the move could go lower, we could potentially reach the ma200 on the daily. Remember that the market however doesnt give a damn as to what you think or feel or know. You should only care about what it DOES. I looked as this chart and was slightly confused. Do I steer my bias to a g/r do I stay away and let it drop more if it does and then play the reversal? What do I do in a situation like this

One idea is to have 2-3 plans for each possible scenario so in this case:

1) If stock opens green ( you set your levels) and it starts to show weakness going red take the short since you know the probabilities would be higher for this move (g/r) 

2) If it gaps down since the support is nearby stay away and wait for a potential reversal play

3) If it gaps down slightly you can also wait for a strong short set up and short it , as long as you know that at any sign of strength you need to get out! 

Well , let's see what actually did happen Yesterday

As you can very well see by the trendline that I have drawn on the intraday chart the stock gapped down slightly pushed up a bit tried to go green and failed at the trendline. Next you see a lower high was formed signaling a potential short. You could take it if you wanted to and still make a nice gain, but as I mentioned you had to know that this was already day 3 of the move and anything could and did happen. The shorts saw a nice gain until the moment that X pierced the trendline with strength ( remember this is not a signal to long yet in my opinion , this is simply a warning that things are changing). X had gone green already with some considerable strength and had broken the trendline. Remember this was also day 3, time to be on the lookout for a reversal. As soon as X pulled back to form a higher low you had to be stalking it for the long. And as you can very well see the long worked out quite well if you were patient and disciplined. The goal here is to have a plan a written plan is even better but also to adapt to what you see happening. Until next time!

MY FAVORITE PLAY: OVER EXTENDED GAP DOWN SHORT

Hello guys and gals. Today the 18th of May was a pretty boring day. Nothing too exciting out there to trade. However there is one type of play in particular that has won over my heart. It is known as the Over extended gap down short. Let me give credit where credit is due. I learned this play from Tim Grittani in his excellent DVD. Let's talk about what makes up this play. And then I will post a great example of this set up from today CWEI

What is the Over extended gap down short. Well first off I want a DAILY chart that is extended to the upside. And when I say extended I really mean extended. Not only price wise but % wise too. Sometimes you may see a chart that is on day 3 or 4 but the range is nothing to write home about. It may pass the visual test on extension , but when you examine it closer it is only up 10% which does not allow it to make my extended list, Second, as the name says you want to see a gap down. I have noticed that in its best possible scenario the gap down is below an intraday level of support but not every time. It is also a bonus point when the stock is at a clear level of resistance on the daily. Adding fuel to the fire. Here is where most of the rookie mistakes happen. You see a gap down the stock may start to go red and you short it, only to watch it turn around and go r/g or close to it. You cover in frustration and bash your monitor against the wall ...well....we wouldnt do that now would we? Ok so the stock opens with its gap down , you need to assume that it is going to try and go green. Wait for it! Once it goes green or near to green and you sense weakness such as in a failed follow through type of play you short it. Remember that on a less than extended chart a gap down is a R/G set up and NOT a short. In this case though we are starting by noticing the daily chart being extended so now a gap down turns on your sirens for the extended gap down short. Let's look at CWEI from today

Here is the example I wished to show you today. CWEI moved from 18 area all the way to almost 30. It passes both the visual test and the % up test. This one as I saw it last night could be a great potential short. This morning it gapped down slightly and tried to make its r/g move. I would not touch it long because it was extended but i wasnt quite ready to short it either. So as soon as it starts to fail the r/g move that is when you pounce on it! And as you can see it wouldve paid off as the stock moved down all day. You also had a chance to short a flag later on in the day for the move lower. 

I will be posting more of these types of plays as it also helps me understand them better. What better way to learn. Hope you enjoyed this post. 

Rules vs Expectations

I absolutely LOVE this quote

 "Traders must be rigid with their rules and flexible with their expectations."

I'm not quite sure who wrote it so I'll just leave it author-less. I did read this last on Steve Burns's twitter. The first time I read it I had to look at it twice but finally it made sense. It was a huge A-HA moment and one that I will always look back to. 

If you are an experienced trader I'm sure you know exactly what this means but as a new trader you may have never truly thought about this one before. Bare with me while I explain this in detail 

"Traders must be rigid with their rules" 

Seems like an oxymoron when you first read it doesn't it. Take another peak at it. Traders must be rigid with their rules. Let's break this down. As a trader you MUST have a set of rules you follow. These could be rules on how to get into a trade, or on how to sell shares once in profit. Rules on how to stop out of a trade. Even rules on how to scan. The reason we use rules is the same reason an airline pilot uses a checklist before taking off. You want to not have to think about a whole bunch of things and just focus on what is important. If an airline pilot had to think about what speed should i get up to to take off today he would probably crash his airplane more often than not. We don't want to be thinking " oh when should I stop out of this trade vs that one " A set of rules is required for each situation you may encounter and you have to stick to it to the best of abilities. When I am ready to scan I don't debate how I'm going to scan today vs yesterday. I pull up my saved scans and thats it no drama no second guessing. With rules comes freedom believe it or not. If you want to be a successful trader which means you will have freedom to work when you wish, from where you wish and how much you wish you must have these rules in place. What about the second part.? 

"Flexible with expectations"

Now here is where it gets fun! What if you have a stock set for a long and you are SURE about it. This is your expectation. You have no doubt (falsely) in your mind. The next day the stock opens below a support and falls hard. You are sooo blinded by your expectation that you wait for any bounce to take it long. The bounce comes in and you load the boat. It moves up a few points and then starts to fail again! You are still blinded by your bias and you hope and pray that this is simply the stock forming a higher low. Much to your susprise it just keeps on falling....and falling and falling. You now can't stand the pain and you stop yourself out. It is perfectly ok to have a plan and an expectation perhaps even a strong bias. However if the stock does something completely against what you predicted you must be flexible and observe what is really going on. Let's look at an example. PRGO 

Daily

Yesterday as i was making my daily list for today I had PRGO on watch for a continuation short on a G/R type move. ( green to red) I was quite positive that some kind of short will occur as it had just had a day 1 type move. Well lets see if my bias would've been correct and what i could've done about it

What do you see here? You see a stock that opened green (which is what i wanted) However it opened with strength over the trendline. When a g/r happens according to my RULES ( which are strict) the move green must show weakness. This one showed strength. It moved up to a resistance but then the pullback was WEAK! So I began to switch my bias due to this. This price action told me loud and clear that if i had stuck with my expectation i would be crushed by the market. Once my bias switched that is when I look for the entry in the opposite direction or not at all if I am not comfortable. In this case we see how after the weak pullback and higher low we took right back off and followed the strength over resistance, 

So this is what I mean by being flexible with your expectations. You stick to your basic rules and/or checklists but stay on your toes for anything out of the ordinary that may happen. If you expect something to happen and cannot admit that the opposite is actually happening right infront of your eyes , you will never be a successful trader. Read this quote over and over until it really sinks in! Enjoy your night

Example of the importance of the Daily chart

Hello! My last blog discussed how to call a reversal in a stock that is extended to the downside. How to enter when the probabilities are already in your favor. This blog will show clearly what happens if you enter a stock for a reversal with the same intraday parameters and your trade fails. Why did it fail? Well first of all trading will have losses even if you follow your system to the T. In this case the trade didn't take the daily into account. 

Your best trades will take place when timeframes align that is the truth of it. If you have a bias for a long trade on the daily and you see a long set up intraday you can take it knowing that the probabilities are HIGH in your favor. What happens though when you see a great set up intraday that you know with all your being will rock your world! but you fail to look at the daily which was giving the opposite message. Well here is an example of this. Let's look at VRX. 

NOte that I am using stock charts here because for some reason the etrade daily for VRX is quite hard to see. This chart obviously was a short bias looking chart yesterday and it ended up as a great short trade. What I want to focus on is the intraday action. Remember that in my last blog I saw you charts that had nice reversals based on trendline breaks. Another form of reversal I use which I learned from Evan Lazarus is called a catch play. In it you want to see a stiock pop over its emas intraday and then pullback to them with weakness before running again. Lets look at VRX intraday 

VRX was a nice downtrender for the day. It then started moving sideways and as you see the first green arrow i placed on the chart you see it pop over its emas it then pulls back and sets again. Typically this is a catch play and you can take it long for a nice reversal long but notice what happens next. It fools people into the long and then reverses and falls back into its original downtrend. What happened?? That is why the daily chart is soooo important. If this had been day 3 ,4,5 of the downtrend and this set up had presented itself ok great! a nice reversal play which would warrant a little risk and you could take this long. This was however day 1, a big push down but still the first day. For the same reasons you dont short a day 1 move long you should never long a first day short, So the greater context is always more important than the intraday action you see , no matter how beautiful it looks. Top down approach is key

BE DISCIPLINED!

This post will be a continuation of yesterdays DDD post. 

Let's face it. Everybody wants to be a trading hero! We want to be able to tell our friend/parent/coworker etc that we caught a bottom or a top in stock xyz. It makes us feel like we know our shit! we know what we are doing and we are masters of our craft. This would be great if you were a basketball player or a lawyer that won a case on a technicality. As a trader not so much. You can easily destroy your trading account trying to play hero and if you don't have your account you are out of luck my friend. Yesterday I spoke about how DDD was not yet ready to make its reversal because it still had not done what I want it to do to actually call a reversal.

Why is it so freakin difficulty to catch a reversal and trade it well. Why do we make so many mistakes when entering a stock hoping for it to turn. The answer is very simple. Because you want to catch it at the ABSOLUTE bottom. You want to be the hero, and that is where the problem lies. Why not be disciplined ( the name of this blog) and wait patiently for the stock to tell you "I'm ready, now you can take me in the opposite direction" Lets look at two different intraday patterns from today NFLX and TSLA. Both had been going down for a few days now and you could assume it they were ready to reverse, but the truth is you have no idea! ( sounded like MTV real world there for a sec). Let's first look at NFLX 3min chart 

I want you to pay attention at the entry point here. Is it the bottom. NO. I would love to call the absolute bottom , but I am not that good yet and frankly very few people are. What I do call is the change in trend, that to me is a much much higher probability set up that you can load up on and feel safe. Notice how it broke the trendline. You do not get in on the break of the trendline, not on a reversal play. You wait for the price action to re test that trendline or near it ( can also be a base )and then as soon as it holds that area that is your $$$ set up. You will notice similar action on TSLA.

They will not always look like this, at times the resistance will not be a trendline but a horizontal area of resistance. The idea is the same though. You want proof first of strength and then a re test of that area. That my friends is my way of trading a reversal set up. 

DDD---parabolic?

As I was scanning on finviz last night for todays trades I couldnt help but see many charts that looked to be quite extended to the downside. Many were on day 3 or 4. These chats immediately set off radars for parabolic long trades, A parabolic long trade is one that has been moving south for a a few days and has not bounced at all yet. I am not necessarily looking for a full on change of trend, but at least a bounce day. In my way of seeing things there are 2 ways of taking these trades. If the stock opens weak and moves down some more and then forms a higher low intraday that can be seen as a long or as I call it a 1,2,3 trade. This set up can potentially be quite risky because you still dont have a push or a move above an important level. What you are going by here is the notion that the stock is oversold and thus based on probabilities the reward is worth the risk. Most of the time it works , sometimes it does not. The second and safer of the two set ups is a move that actually breaks an important level, a resistance or a trendline and a pullback to test that level or near it. When this happens you can safely get in and since you have now been patient and waited for a change of trend you are now once again in with the trend on the intraday chart at least.  Here is a look at DDD on the daily at 2:24pm 5/5/16

This chart was quite extended as you see, even taking away todays candle. I had it on watch for a long at some point. I was looking for one of those 2 set ups. We opened weak and moved lower but the move lower was interrupted. DDD then tried to move down again and even though it moved to a new lower low there was a strong lower wick that closed the candle showing strength and that sellers may be overpowered at this stage. This is what i mean when i say the higher low set up or 1,2,3 , even though it was a small 1,2,3 set up it was one and thus it would have to be taken. It worked for a few minutes but then failed as we touched the bottom of the descending trendline which you will see below. Next DDD formed a lower high and faded back down to the LOD ( low of day). 

Depending on your risk tolerance you should choose which of these set ups you prefer. The more clear the set up looks such as maybe a strong support level or an area which has held plenty of times before I will tend to need less confirmation to enter a trade. However a stock like DDD even though it was extended it COULD have gone lower, it was not extended to the extreme. In this case maybe it is best to wait for confirmation of change and then ride the wave. I'm not saying you had to take the short once it hit the trendline , what i am saying is if you wanted to take it in the opposite direction then it better show you that it was ready