Vengeance is Mine

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Foster Wheeler Ltd. (NASDAQ: FWLT) has smacked me around in the past, but today, it was but the learner, I was the master. ;)

I traded 3 times today, two wins, one loss. I tried a new idea I’ve been thinking about over the last few days on the first two trades.

1. AMGN short

I was watching AMGN after it made a new high for the day at 55.20. I watched on a tick chart as price stalled out there. This was a crazy tick chart–the time period was 1 tick per candle. Basically, each tick was a single line at the trade price. Why, oh, why you ask? Because I could put an On Balance Volume study under that to see if the price moves were supported by commensurate volume or not. Here’s two schematic examples of what I’m talking about.

First, how OBV would react to equal price moves on differing volume:

And second, a divergence I would look for to see if a new high in price was not backed by volume:

This is what I saw in AMGN. Here’s my tick chart, with my orange entry, red stop, and light blue partial exits:

For orientation, here’s a 5 min chart showing the region I was focused on:

When I saw the divergence, and the stalling of price, coupled with the fact that it looked good to me as a long on the 15 min chart, I faded myself and went with my read of the OBV divergence. I covered in partials, first 1/2 and then 1/4. I decided to “lottery-ticket” the last 1/4 and moved my stop to my entry point. If AMGN tanked, I’d get a big payoff, but if not I’d get out at my entry. That’s what happened, so I made +0.43R on the trade. MY stop was probably a bit wide, but I was cautious.

2. VMW Short

Tried my OBV divergence thing again, but this time it didn’t work, or so I thought. Cut the loss short, -0.37R. But then it DID work out! I missed a move all the way down to 77!! If I would have held to my original stop, I would have made +2.7R conservatively! GAH Also, WTF is going on with the huge upturn in OBV in the last half hour? Strong hands buying the dip?

3. FWLT Short

I saw FWLT make a tweezer top on the 15 min, right at the 138% fib extension. While I saw the setup on the 15 min, I traded the 5 min. I took the short, aggressively took the first partial and then let the rest ride down to a dollar below my first target. We dropped almost a point lower than that, but you can’t always call the bottom (or top) exactly, so I was satisfied. +2.14R. I need to think of a way to intelligently add back in if we get a big move like this after I’ve taken a partial. I’m shocked it dropped as far as it did! I thought we’d bounce off of the 100% fib level at 122 for sure. We did, but then fell back under it, but I was already gone by then.

15 min setup:

5 min trade:

The OBV / Tick chart was no help on this one, since the selloff was on such low volume. It hardly moved at all during the whole decline:

So I ended the day up +2.25R, and didn’t take any dumb trades. Yay, me. :)

Let me know if you have any thoughts about the OBV / Tick chart stuff.

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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com