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OneOption Strong Gap Up – I
OneOption Strong Gap Down – I
Daily Watchlists – Aug 28, 2009
August 28, 2009Daily Watchlists – Aug 27th, 2009
August 27, 2009Daily Watchlists – Aug 26th, 2009
August 26, 2009Daily Watchlists – Aug 25th, 2009
August 25, 2009My Trading Portfolio Selection Process
August 25, 2009Here are the high-level steps I follow to select stocks for my portfolio
Perform Top-Down Market Analysis
- Check the trend of $INDU, $SPX, $RUT, etc.
- Check the $USD versus the YEN, or EURO.
- Check the $VIX (although not hugely important)
- Check Crude Oil futures.
- Check $TNX, $UST (Stocks & $TNX go hand-in-hand).
Perform Industry/Sector Analysis
- In BULL market, pick the Top 4-5 TOP performing sector/industries
- Track the TOP 4-5 stocks in each of the above.
- Look for Bullish price patterns (Mostly continuation patterns)
- Ride the trend, if firmly established at the time of entry.
- If it’s a bullish reversal breakout pattern, ’swing-trade’ until a Trend is established.
Stock Selection (For Trading Options)
- Select Stocks showing a big price move potential in a short-period of time (for Options).
- Select options with a high Open-Interest (>500),
- Should have Low Implied Volatility (Check the curve on iVolatility.com)
- Should have low Bid-Ask Spread (not more than $.30)
- Depending on the length of the price pattern, choose an appropriate time-period of option.
- Depending on the projected size of price move, select the appropriate type of Option (If unsure, just pick an ATM or slightly ITM option)
Diversify
- Always hedge your stock selected above with an equal or slightly less number of positions in the opposite direction. This is known as being ‘Delta Comfortable’. This ensures that if the Market goes against your bias on a given day, you hedged positions offset the losses on your biased postions for the day.
- To diversify, just reverse the process in step 2.
- For e.g. in a BEAR market, look for the 3-4 of the Weakest sectors/industries. Track 4-5 of the weakest ones in each.
- Look for bearish patterns, and go Short or buy Puts
- Also look for sectors/industries that are looking to be rolling over, and take positions in anticipation of further collapse.
Rules for intraday setups
April 13, 2009- Do not short stocks in intraday uptrends, unless they are met with huge longer term resistance levels.
- Understand your job. Your job is to find high win rate trades with excellent risk/reward opportunities. Your job is not to pick tops and bottoms.
- Traders simply make trades that mathematically generate profits over thousands of trades.
- Find trends (channels) on the daily. Buy support and sell resistance in this channel.
- Look for MA crossovers on the 30 min, and the 1 min at the ‘Daily’ support/resistance.
- Look for Pullback patterns (Flag, horizontal, wedges, etc.) on the daily. The 30min will most probably be in a downtrend channel. So, look for the 1-min MAs to cross-over and cradle near channel support. Or if you’re conservative, wait for the 30 min. MAs to cross-over and cradle.
Fundamentals – Questions to Ask
April 1, 2009When evaluating the fundamentals of a stock, ask -
- What is the relative strength of the stock relative to its peers?
- What is its year-over-year growth (earnings)?
- What is the return on capital?
- How much debt is on its books
- P/E, P/B value.
- What is its intrinsic value?
Other Points
- Earnings, M&A, Insider Trades, other announcements can act as catalysts to the price of a stock.
- If stock A in a sector announces bad/good earnings, chances are that its peer or competetor (B), would have similar earnings too. So one can use this info. as being a potential catalyst in driving the price of the peer in the direction of its intrinsic value, or in the direction of stock A’s price.
Gap Trade – Checklist
January 12, 2009GAP Trade – Quick Checklist
- Gap should be below/above previous day’s high/low.
- What are the 20/50 MAs doing?
- Mark Support & Resistance, Trendlines
- Mark Gap High/Low
- Where are the Pivot Points?
- Is this is Trend break scenario or Trend Continuation scenario?
Scenario #1 - Price retrace’s immediately.
- Wait for retrace to resistance or gap high
- Stoch in extreme level
- 20/50 MA cross should have happened. If not, better to wait for next leg down, by which time MAs should cross
- Candle = Doji, Hammer, or Engulfing
Scenario #2 - Gap down/up continues without retrace, see how far it is from MA
- If too far, wait for it to retrace close to 20MA
- Whipsaw risk is High, so -
- Draw a bottom uptrend line during the retrace.
- Anytime the bottom line is broken, enter on a retrace of the breakdown.
- Again check the Stoch – Should be Overbought.
- Again, enter on a Doji, Hammer, or Engulfing pattern
- If none of the above happens, PASS on the trade
- If retrace doesn’t get close to the 20MA, wait for a consolidation zone to form
- Also, wait for stoch to become overbought
- Enter on a Hammer, Doji, or Engulfing Candle.
Daytrading Setups, Targets, Stops, Candles
December 31, 2008Setups
Consolidation Breakouts (Reverse for Shorts)
- 20/50 cross should have happened.
- Price should be above 20MA on the Daily Charts
- Price above 20 MA on 5 min.
- Stochastics should show bullish divergence
- Buy the BO
- Buy retracement BO (Flag, or pennant BO) based on candle patterns.
- Stop below previous higher low, or below consolidation zone, or whatever support that makes sense.
- Target at Flag’s measured move, or Pivot point R1/R2, or Fib retrace, or next major resistance.
- If rally is strong, preferably sell half position, instead of full. Use the next 2 steps for exiting the remaining.
- Before a valid TL can form (2 consecutive higher highs & higher lows), use Darvas boxes to trail the stop-losses.
- Then draw the TL, use it as support. Stop will go under it.
Trendline touches
- After 2 higher highs & higher lows, connect the low to form a T/L.
- This should be a setup starting at the beginning of the day, i.e. it should have formed over the last
- day or 2.
- If MACD is making higher highs, & trend looks strong (big white candles, strong vol), buy the TL touch & bounce,
- using candle patterns
- Target is the touch of the upper TL.
- Stop below a support zone, below the TL.
Trendline reversal
- Price makes Higher high, & a higher low.
- Price takes out the higher high, and retraces.
- Buy the retrace, using candle reversal pattern, near support.
- Check to see if the 20/50 cross has also happened.
- At this point, price will most probably be in the TAZ.
- Stop below the new higher Low.
- Target – Next logical resistance.
Major Candle Pivot Patterns
- Hammers, Dojis, Dragonfly, Harami & Engulfing candle after a downtrend.
- Bottoming tails are a sign of strength
- Topping tails, near a new high, mean sellers are getting stronger, & the trend might end.
Price Target Determination
As you decide on a price target, consider the following…
- Possible Support or Resistance Areas That Prices Could Trade To
- The Average Move of Recent Price Swings
- The Underlying Trend and How Strong/Weak it is
- Suggested Target Prices From Applicable Price Patterns
My Model Setups With Annotations
December 25, 2008Here are links to some of my annotated charts
Daytrades
- Daytrade on a Double Top/H&S breakdown Strategy (AIV)
- Consolidation area Breakdown (AAPL)
- Massive Uptrend Breakdown (AB)
- Descending Triangle Breakdown (ACI) – Alert & Nimble Trade
- Consolidation support Breakdown (AKS)
- Avoiding a Failed Trade (AMG)
- Trend Continuation Trade (AMZN)
- Good clean TAZ trade (ANR)
Weekend & Weekday Workflow
December 18, 2008Weekend Workflow
Here’s a list of things I follow over the weekend to prepare for the week ahead -
- Top Down sector analysis
- I track the leading/lagging sectors for the week here.
- Then I pick interesting sectors from this list and add/update to my weekly sector list here (bullish) & here (bearish).
- Then I zoom in to the individual sectors and pick the strongest looking setups and add/update this intermediate list.
- I do the same for the weakest looking sectors and add/update this intermediate list.
- Then, for the ‘Longs’ list, I do some basic fundamentals checks by checking the following sources -
- When all checks produce strong results, move the stock to this weekly ‘final list’.
- Do the same for the final weekly ’shorts’ list here.
- For each chart, mark support/resistance zones, trendlines, patterns, etc.
- Also, add the comparison lines for the sector index & $SPX to each chart.
- Note earnings days for each stock.
- Mark out where I plan to enter, and where the stop loss will be, and where the profit targets will be.
- Plan the number of shares I plan to purchase.
- If buying options, mark out the option details (month, contract size, etc.) I plan to purchase.
- Also check the folllowing lists -
- IBD200 list
- TI list
- Gilmo List
- Repeat the steps above for each stock in the list
- For Daytrading, pick setups from this list and move them to the longs setup list & the short setup list.
Weekday Workflow
Here’s is a list of things I check before market opens, everyday.
- Futures (DOW, S&P, NASDAQ, /CL, /ZN, /YG, /DX, Euro & Yen) here & here
- Check credit spreads & libor here.
- Any overnight news/events
- Economic calendar
- During the day, check the Market Internals ($TICK, $TRIN, Advance/Decline line, A/D Volume)
- Monitor first 20-30 min. Establish the Hi-Lo of the Dow/SPX/COMPQ.
- If it seems like a trend day, enter long or short positions.
- Day trade the indexes to hedge, if possible.
DayTrading Results
December 5, 2008Today, Dec 5, 2008, was my first official day of daytrading. I will be adding results here on every single day that I day trade, in order to accurately track my progress.
Dec 5, 2008: +1740.94, Cumulative Total : +1740.94
Dec 8, 2008: +1167.85, Cumulative Total : +2908.79
Dec 9, 2008: -498.36, Cumulative Total : +2410.43
Dec 10, 2008: -2212.02, Cumulative Total : +198.41
Dec 11, 2008: +626.88, Cumulative Total : +825.29
Dec 12, 2008: -1242.71, Cumulative Total : -417.42
Dec 15, 2008: No Trading Cumulative Total : -417.42
Dec 16, 2008: +577.33 Cumulative Total : +159.91
Dec 17, 2008: +209.00 Cumulative Total : +368.91
Dec 18, 2008: +1304.67 Cumulative Total : +1673.58
Dec 17, 2008: -219.70 Cumulative Total : +1453.88
Dec 22, 2008: +2402.10 Cumulative Total : +3855.98
Dec 23, 2008: -36.00 Cumulative Total : +3819.98
Dec 24, 2008: +132.40 Cumulative Total : +3952.38
Dec 26, 2008: -31.79 Cumulative Total : +3920.59
Dec 29, 2008: -428.34 Cumulative Total : +3492.25
Day Trading Marketwatch Tools, Setups, Entries, Exits, Strategies
November 15, 2008Indicator to Watch
In order to put the odds better in our favor, we need to look at the following on a daily basis.
- S&P Futures
- $TICK – This indicates the difference between the no. of stocks on an UpTick and those on a DownTick. (Extreme Values: -1000 to +1000)
- $TRIN – A measure of volume going into advancing stocks versus declining stocks. Readings below 1.0 indicate more volume entering advancing issues – Bullish, and vice-versa. Therefore, declining TRIN is Bullish & advancing TRIN is Bearish. (extreme values: -0.35 & below OR +1.50 and over)
- NL – New Lows
- Big 5 Index – GE, C, MSFT, AOL, GM (If a few of these are decently up for a day, the rest of the market follows. For e.g., if C is up, the financial sector would be up. If MSFT is up, technology sector will follow, and if AOL is up, the internet sector follows.)
Trade Setups
- NRBs & NRs: Watch a rally run into an area of resistance. See if the set of narrowing range bars are forming, and/or a narrow body has also formed at resistance and is now heading down. Enter a short below the low of the NR. Reverse for going long.
- Topping & Bottoming Tails: If a tail or inverted Hammer forms in an area of resistance, go short below the low of the Hammer.
- Gaps
- Breakouts from Price Patterns
- Trendline & MA breaks.
- Price breaks out of the 10-min (or higher timeframe) downtrend line.
- Has price made a higher Low at this stage? Higher high?
- Wait for both HL & HH to complete.
- MACD should show positive divergence.
- Check $TICK (postive), $TRIN (under 0.9 and hooking down), $UVOL > $DVOL
- Enter preferably at the new breakout support area, on a White Candle closing over the previous RED candle. Stop loss under the higher low.
Hedging
November 13, 2008Here’s a summary of my strategy to hedge my portfolio.
Assuming, I have a bunch of strong longs in my portfolio which I have just entered, and I’d like to hold them for a bit longer than normal, i.e. ride the trend while it lasts, which means I’d be willing to let them go through one or two minor corrections. In order to ride out these corrections, and not let them turn into major ones, i.e. damaged chart formations, I would hedge by buying a DXD, SDS, etc. Here’s how to do it (These steps might change as I put these into practice)
How to Hop Out If We’re Wrong Initially
- Enter DXD at key support areas. Position size appropriately, i.e. the no. of DXDs should be enough to cover a 1-2% retracement of my portfolio.
- Place a hard stop, just under support for DXD. This is so if the the market continues to rally forcefully, there’s no point in holding onto the DXD. If it turns out to be a head fake, i.e. DXD, gets back above support & rallies, re-enter intra-day, appropriately, possibly on a retest of support.
- If DXD rallies considerably, this would mean some of the longs have suffered in a major, and may no longer be bullish. We need to close these positions out. But how? We will close DXD first at key resistance areas. (Peel off trick?). Then close out the longs as they begin retests of their previous support.
How to Take & Protect Profits If We Are Right
- Peel-off positions at key resistance areas.
- As above, buy DXD at key support areas.
- If stock is still strong, buy more at key support areas, but have a tighter stop for these newer positions, in case the market does not rally any more.
- Sell DXDs at key support areas, and close out any losing position, preferably as they are retesting their broken resistance levels.
- If a stock has potential for further rallies, and has still not broken its trendline, we may skip step 1, and just hold onto existing positions.
Books to Read
October 27, 2008- Market Analysis over multiple timeframe
- Intermarket Analysis
- How to Short Stocks – Gimo
- Canslim Methology – Biil O’Neil
- TAZ Trading, blogs, tips
- Position Trading – Gagne
- Beginning Day trading
