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

I was stopped out of my 1st trade this morning (red 1). My risk was extremely small (5 cents). The second trade (light blue 2) did not allow me a low risk entry. I watched as oil continued to climb without me.

However, at 11:45 the QM printed a shooting star on heavy volume. High volume late in the rally can often signal at least a short-term correction. I looked to the PnF chart for my entry. It pulled back to the 45 degree trendline, and I went short. With my stop set at 7.5 cents, I was able to pull out a nice R gain of over 5:1.

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

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

I’ve been experimenting with different ways to use the PnF charts. With this particular setup (5/22), you have a gap down on the 5′ chart. A common strategy is to wait for the gap to fill, and then go short. As you can see from the 5′ view, it never filled. However, look at what happened on the PnF chart. It rallied exactly to the downtrend line (45 degree), and reversed.

Both charts are highlighted by ‘1′ to show the exact point of reference. As you can see from the regular candlestick setup, oil printed a bearish engulfing bar on heavy volume which would have alerted “smart” traders to a possible short entry. Since I’m not that smart, I like the simple way which was presented on the trusty PnF chart.

What I am finding particularly useful about the point and figure setups is the ability to limit my risk dramatically. I find myself straying from the textbook entries, and looking for what I call creative strategies. Open the left side of your brain, and see what happens.

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

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

I took a live trade with my PnF for Dummies idea.

CREE showed up on the NASDAQ’s Unusual Volume list. It pulled back to the 45 degree trendline. After breaking the trendline, it turned back up. That was a possible entry, but I missed it.

After another upward surge it consolidated for a bit. I took a long entry near the bottom of the base. I set my stop below that range (with PnF charts you must allow for where the next ‘O’ would form) for a total risk of 13 cents. Note the highlighted yellow line. If you look hard enough, you can see a triangle that formed. That would be the first area of concern. Although it broke through, I’m unable to monitor the market for the rest of today. I’m closing it for a 44 cent gain. That’s a little over 3R.

I would say this is a Richard type of play, but 13 cents risk is way toooo much! :-)

Edit: This is the chart for the remainder of the session. Holding until the close in true dummy fashion would have resulted in a gain of 10R. Its something to think about. This chart shows the after hours action, so selling at 4 pm would have yielded an even greater gain.

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

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

The Chairman highlighted CIEN today. Here is the PnF for Dummies setup. Is that 45 degree trendline magical or what? I cannot figure out what the significance can be behind this trendline on a stock that is running.

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

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

Trader-X had an interesting play with BIDU. It gapped down with the rest of the market, and rallied all day.

I’m not sure why, but when a stock (or futures contract) is trending, it bounces off the 45 degree trendline with amazing frequency.

I used a 10 cent box with a reversal setting of three.

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

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

The Chairman is posting dummy trades again, and I am going to embark on a little experiment. What I would like to do is take his dummy trade of the day, and display it on a point and figure chart. I think it may prove to be useful, but only time will tell.

For now I’m using a five cent box with a reversal setting of three. I think that setting will allow traders to filter out much of the noise, and find a low risk dummy entry. The chart he posted today wasn’t a screamer. I will alternate between dummy trades, and Trader-X plays.

Edit: Vincent pointed out that my settings were not correct. This chart looks more familiar.

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