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A Potpourri Of Trade Ideas and Setups

Archive for September, 2010

Another Sunday Another Sector Play

Posted by lasertrader on September 12, 2010

Now that my Patriots are off to a great start, while you New Yorkers are opining about your Giants and Jets, I have a few minutes to point out another macro sector that I am playing and looking to play over the coming weeks. I don’t have time to pour a lot of background into this post so I will be short and sweet. Earlier this week I tweeted out my entry into the Grains. My initial positions are in JJG and GRU. These consist of commodities plays in corn, wheat, soybeans etc.

From a macro point of view we have a world economy that is starting to get back on track. Global population that is still growing at a rapid pace and short term catalysts like Russia limiting exports and weather leading to lower yields. Take these macro themes into account as you look at the charts which tell the story for the trade. I hope these aren’t too small but I thought it important to show the larger time frames. Both ETF’s have run up to longer term resistance and pulled back 38.2% on the daily. They are now moving up nicely to the highs again. If you pull back to the weekly time frame you see a multi year base that is looking to break out to the upside. If they do, there is plenty of room to run. I will be looking to add to these initial positions as the trade plays out as well as look for other grain/agriculture opportunites that may include JJA  MOO  PAGG  CORN  DBA

Here are the charts ( Top Left = Daily, Top Right = Weekly, Bottom Left = Monthly, Bottom Right = Hourly)



Good luck this week.

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“Being a Chameleon” and “Anatomy of a Trade”

Posted by lasertrader on September 12, 2010

I don’t know why but I woke up exceptionally early this morning with a couple of things from this past trading week on my mind. As I drink my coffee, eat my oatmeal (which makes me think of another sector blog article I hope to get out tonight) and crunch on a couple of fresh out of the toaster Eggo waffles, I figured I would share these musings and also reinforce them in my own mind.

Being a Chameleon

I received an email from a friend of mine asking for my thoughts on an article he just read. It was located in the eSignal Trading Education section and is titled “What Style of Trader Am I?” . The article which can be read here is a good read that discuses the 4 main types of trading styles ( Scalping, Day Trading, Swing Trading and Position Trading).

The title is a question we should all ask ourselves and more importantly ask the others you are getting trade ideas from. As I mentioned in last week’s blog post, StockTwits is full of excellent traders pouring out great ideas 24/7 and also close to real time trades during the day. As I see these ideas flow by they seem good on the surface but without knowing what the poster’s Trading Style is you may be setting yourself up for a loss because you didn’t manage the trade properly. Take the time to define what your style is and make sure the folks you “follow” match your style of trading. The goal in this trading business should be to avoid information overload and focus on the information that provides value to you and helps you be more profitable. If you are a swing trader then why follow a bunch of scalpers. Watch the stream of people you follow and perhaps set up your own separate Twitter Lists of  people who share the same trading style such as “Scalper List” and “Swing Trader List”.

A new trader should pick a style they feel comfortable with and focus on it until they become very proficient. As a trader who has been doing this for many years, I responded to my friends request for comments on the article this way:

“Thanks for this. Its a good article. My thoughts are that there is a time and place where each type of trader can make money. If you choose just one style you may have to wait for the appropriate market conditions to setup before you can take advantage of it. If you have the ability to do each of those styles you can trade every day. It really depends on your time frame and goals. If you want to generate daily income become a scalper and/or day trader. If you can exist in a longer time frame get larger gains by swings and positions.

I say “Be A Chameleon” and adapt to the current market conditions using the style that fits it, or wait for the proper conditions to suit your one style.”

Being proficient at one trading style can prove to be very profitable and we all should make sure we know what we do best and feel comfortable with. Just understand that if you chose a swing style there may be times where the market conditions don’t support big profits in that area and you need to be patient for the few times a year where the big money is made swing trading. As you become more experienced you may want to learn to trade other longer time frame or shorter time frame styles. That’s fine but always make sure you know what style of trade you are putting on so you can manage it properly.

So….. this leads me to a trade I did on Friday…….

Anatomy of a Trade

Each day I come into the day with a plan or road map of what I want to do given the market conditions as I see them. I found that if I don’t have a mental road map prepared then I am just chasing ideas all day. In most cases, chasing leads to poor execution. On Friday I came into the day knowing that I had several multiday swing trades that I put on earlier in the week and I felt the market is getting a bit overextended. The SPX has been playing out very nice technically. It approached the long descending trend line, paused forming a bullish flag then broke to the upside in a clean technical play. Although it looks good for more upside, my thoughts going into Friday was that the best we may do is the 200ma at 1115 and then we may have a rest or pullback due to the overbought nature that is starting to show. Here is a look at the chart:

With this in mind I came into the day with a plan of not adding any new long swings and perhaps taking a number of them off for a profit if they are near a resistance/target point. My plan was to be an opportunistic scalper/daytrader to make some change but not to hold any new trades over the weekend.

I did a nice trade in DO on Friday morning posting it in real time in TraderStewie’s chat room (The Art of Trading/TraderStewie Blog – links on the left of this blog) and after the trade I described exactly how I found it and traded it. For day trading/scalping I use a particular Chameleon style that I will share here in going through the DO trade execution.

On one of my screens I have a watch list of about 50 stocks (click the link for the current list). These stocks consist of good companies across several sectors and are also high beta trading stocks that can provide nice gains intraday. The trick is to set up the watch list so it is constantly being sorted by % gain. By doing this, you can instantly see the biggest percentage gainers at the top of the list and if in the top ten there are a couple of companies from the same sector you also know what sector is the strongest. As you get familiar with the list you will see intraday a stock start moving up quickly and that could also give you an opportunity. For this discussion I want to describe the DO trade because it was one of the cleanest trades you can find using this setup.

As I watched the market and my Twitter stream during the first 30 minutes is saw twitter all over RIG, everyone was mentioning it and trading it. I looked at my high beta trading list and RIG was in the top position. I quickly took a look at RIG and saw that it had already broken above Thursday’s high and was flying. I didn’t want to chase so I figured I would wait for a new intraday setup in RIG on my 5 minute chart. Then I looked down the list and saw DO in the number 2 position and OIH around number 6. It was clear money was flowing into the oil service sectors and RIG was not a unique play. So, since I decided to wait on RIG I took a look at the number 2 DO . Starting with the daily chart I saw that DO has yet to do what RIG had already done. I saw a very bullish either ascending triangle or channel breakout about to occur. Here is the chart (shows the pattern and the result):

Once I saw the setup forming on the daily I drilled down to a chart of my 5 minute trading time frame and saw a sweet setup as it had not yet broken Thursday’s high and if it did, it would most likely move nicely as RIG and the other OIH components were strong. Here is the chart (shows pattern setup and result)

It doesn’t get better than this. A setup that hasn’t yet triggered in a high beta name in the strongest sector of the day on my watch list. I entered the trade at 61.55 on the break of Thursday’s high. The way I like to trade is to immediately put a sell order in at what I feel would be a reasonable target for the trade. I can always move it down if the momentum wanes, but I find that my targets are usually good and the stock doesn’t often go much further. It seems that any time I think the stock is going to keep moving higher and move the sell order higher  it hits my first target and quickly reverses so I honor my first target and take my profit. If it continues going then I may look for a re-entry but I have already booked a nice gain. Some people like to take half off letting the other half run and that’s a reasonable thing to do as well.

My first thought with DO was that the target could be the daily 200ma at about 62.30. I looked at the 60 minute chart and saw that if it could get through there it had a chance of running a bit more. Since the sector was strong and everything seems to overshoot normal TA targets these days I put the sell at 62.59. Again, I find that stocks moving on momentum will often get to a price of xx.60 then pullback to xx.40 before resuming their upward move. That’s why I chose 62.59. In the end it hit my target for a stress free gain of 1.04 points.

The intent of  this “Anatomy of a Trade” recap was to explain one of my Chameleon methods in detail so you might be able to tweak your methodology to choose the best trades given the market conditions. Good trading!

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Go Where The Real Growth Is

Posted by lasertrader on September 5, 2010

Yesterday while my wife and I were rambling up the coast of Maine and away from the tick by tick action of the markets, my mind started wandering on bigger picture thoughts that I occasionally revisit while the markets are closed. Incidentally, if you haven’t visited Nubble Lighthouse near York, Maine its a place you should see if you are in the area.

The first thought I had to do with the Twitter / Stocktwits stream. Like many of you, I follow a number of close friends as well as the list of very good traders you probably have on your follow list. There is a continuous flow of very good chart supported setups streaming on your Twitter time line all day and often all night. Stocktwits has been a game changer for the individual trader. Mixed in with the actual setups are many very good market observations. Many of these observations flow by and often you don’t give them a second thought. As I have learned to focus on my own setups, I have paid more attention to the flow of market observations. This has helped me see things happening before the trading universe jumps on them. Many times traders get lost in the minor theme and miss the big picture.

The example from this week has to do with the financials. For the past couple of months how many times have you read “this market isn’t going anywhere without the financials”. On Wednesday of this week the XLF broke through a long downsloping trendline on very strong volume but I wasn’t seeing this mentioned on the stream. Instead all I saw were Tweets about Goldman Sachs not moving. Yes from a micro point of view GS was acting like a dog but the rest of the financials were moving up nicely on volume. My Tweet mid day Thursday was:

“$XLF after weeks of people saying the markets not going anywhere without the financials. Now that they are running nobody notices?”

From Wednesday onwards I was trading the FAS and once GS finally kicked in on Friday it was game on 100%. This weekend I see the move in the Financials is being validated by the stream. Its time for this sector to show some leadership so keep it on your list. The point here is that in between all the great chart setups and post trade analysis on the Twitter Stream, there are very strong messages that often get lost in the short attention span of the trader. Keep a Diary of these thoughts and revisit it on a regular basis and you will be sure to spot opportunities before the majority of traders get on board. If you look to trade the XLF or FAS this coming week, you alrerady missed a 10% move.

The second thought I had was Growth. It seems there is lots of talk these days about economic numbers and whether they are real and if the growth in the U.S. is real or not. Every economic report that comes out swings the market back and forth and the numbers continually get revised. There are lots of cross currents in the U.S. economy and they have made for a very choppy and nervous market. Until a real and perceived sustainable growth trend appears we remain in a risky and choppy market that is difficult to trade. Even the old go to China market is exhibiting the same chop and nervousness. Just think, when there is finally a feeling that the U.S. and China are on a solid path again trading will get “easy”. We all keep waiting and watching for this so we can go all in long for the ride of our lives..if we don’t double dip and have the world come to an end before then.

One article caught my eye this week and has been spinning in my head since then. It was an article by a newsletter writer that I have lots of respect for and have read for more years than I care to admit. Here is an excerpt:

“Earlier today, India reported that its “real” (inflation-adjusted) GDP grew a sizzling 8.8% in the June quarter from the year-ago period. Unlike China, whose government-manipulated economy is coming under increasing suspicion both inside and outside the Middle Kingdom, India is experiencing genuine, balanced growth. Exports, for example, account for just 20% of Indian GDP, versus close to 40% for China, with its bloated industrial sector and starved consumer sector.

India’s stock market is also trouncing China’s in 2010. Year to date, the Bombay index is up 2.9%, compared with a 19.5% loss for the Shanghai index. Tune out the China hype and buy PIN”

I sit here thinking that while we are all waiting for “real” and sustained growth to show up on our shores, there is already an opportunity for us to reduce our risk by trading India stocks. This will be one of my trading themes for the weeks ahead along with the financials.


If you need to think about the markets this weekend, toss around some macro themes that may help you choose better stocks to trade. There is never a shortage of trade setups. The key to making money is to choose the ones that will play out with less risk and potentially higher reward. Enjoy the rest of your long weekend.

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