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

I was down big in a hurry this morning as I tried to scalp a top in NVDA 4 times. That was incredibly dumb. Two times should be enough to teach me a lesson, but four? I also had some bad luck with dummy longs in NVDA and EXM that gave me more losses. So I was down -4.5% going into the afternoon. I pulled out of a long trade in RIMM at my entry point, that reversed to the tick and went profitably on without me.

I finally got my act together and traded well in the afternoon. Here’s two good trades, one a win in YHOO that Zoomie traded along with me (though his entry may have been different):

I saw the base just under $24, and bought at $24.01 with a tight stop. YHOO stalled a bit and retraced to my entry, so I took off half the position there. That was the right thing for me to do, but not the most profitable it turns out. We had another scary moment in the afternoon, but we went on to almost hit 24.50, and I got out at 24.45 for a 2% gain. This put me back to -2.5% on the day, which helped my psyche very much. :)

I also tried a parabolic short scalp in ICON. Look at the 5 min chart:

Now THAT’s parabolic!! The only trouble is that there wasn’t much potential due to the steadiness of the rise. If it were a sharper break to the upside it would have offered more, but the target was only about $0.30 or so. I tried it anyway, and I played it well, even though I got out at a small loss. I’m happy with how I scaled in, and there just weren’t any sellers at $22.02 when it was ready to break, so it didn’t. I thought about trying to smash the bid by sending a few hundred shares short at market, but I’m not Livermore and they probably would have absorbed my shares and turned it right around as it did anyway. I still wonder what might have happened, though, as the liquidity totally dried up…

Here’s my trade:

So another down day, and I’m within about $65 of my initial funding level, having been up 30% back on that fateful day. I hope to do better tomorrow. :(

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

On Wallstreak yesterday, there was some discussion about whether scalping short in the StreetSmack method is just attempting to call the top in a move. There are an infinite number of potential tops in a move, but only one true top. Your odds of getting it exactly right are slim. Better to short a weak stock.

This is all true. However, there is more to a parabolic short than that! You only want to enter a short if there is a convergence of several things:

1) Momentum divergence, meaning price made a higher high but momentum made a lower high.

2) Potential overhead resistance is being reached. This can be a pivot point from a daily chart, an upper trendline from a price channel on the 15 min, a 200 day MA, a 52 week high, etc. Anything that could potentially offer resistance to further price movement.

3) Price action up to the resistance point must be parabolic! A slow uptrend or any consolidation at the resistance is just as likely to break out as break down, and there’s no edge at that point. A parabolic rise, however, is probably not sustainable and will likely be repelled by the resistance as it is already overextended.

The question becomes “How do you define parabolic movement?” There are a number of ways, from eyeballing, to actually calculating a mathematical formula for a parabola. My method is this: Compare the price movement to a moving average on a higher timeframe. Say the price on a stock has spiked up $2 in the last 15 minutes. If a fast moving average is not able to keep up with the move, then this is a parabolic move. Price usually does not get far from the 5-ema without retuning to it (or at least close to it). So if price gets too far away, it’s likely (not guaranteed) to return to it. So my definition of parabolic is an extreme move away from the 5-ema on a chart with a higher timeframe.

Even with all of this, you still don’t want to enter a short yet! You can scale in a very small position here. As price goes down (or up) you can scale in and out to dynamically change the average price of your position. But you still haven’t really entered yet.

The cue to finally enter and pile in big for your full position size is a big downward break. You wait until it’s obvious that there will be a collapse. If it never comes, you never fully enter. You’re not shorting the top, you’re piling in to a stock that is in a confirmed downtrend on a very short timeframe. That’s the difference.

These charts of my trade in RIO show each of the above elements–Momentum divergence, nearby overhead resistance, parabolic upward movement with respect to the 15 min chart 5-ema, and a confirmed downtrend before the big entry.

Just to make a point, I traded one more time today while writing this (I lost -4.5% today in 7 losing trades with only 3 winners. I’m killing myself by forcing trades. I took good setups, but they didn’t work. But RIG did (which I didn’t trade), and it was just like trades I took in HANS and AGIX; go figure).

Anyway, I traded very small, scalping URBN short, so it was basically just a practice trade. This is a poor example, but it’s the best I could do on a Friday before a holiday weekend, okay? :P It shows all of the elements outlined above:

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 spent a lot of the morning throwing money away. I got no love from CAL as I tried to short it 7 times from around 31 and it never moved. We had a big expanse to cross, and on a day with normal volatility in CAL we should have hit 30 easy, as Jamie said today.

I was down about -2% on my equity when Wallstreak user dinsf called out RIO as a potential short candidate. I looked at the daily and the 15 minute to get an idea of potential resistance zones that might stop RIO’s advance:

Daily:

15 min:

With these resistances and targets in mind, I turned to the 1 minute chart to look for momentum divergence.

1 min:

I saw one (though it was very small) and decided to scale in 1/5 of my overall position size at 49.19 after a relatively high volume candle with an upper tail fairly near the overhead resistance. I would keep an eye on the resistance levels to make sure I got out if those were breached. RIO started to slide, caught a bounce or two, and then threatened to make a lower low. That’s when I piled in the other 4/5 of my position at 48.90. (In retrospect, I was too conservative and should have scaled in sooner–I sat out of half of the move!) I covered half when we had a lot of chop at 48.75, fearing a move back above my pile in point of 48.90. I held the rest until we hit the target area of 48.40, and covered at 48.36 for the rest.

I don’t know how to characterize the risk / reward on this play. My initial risk was from my entry at 49.19 to 49.50 (the highest resistance and also my failsafe point) on 20% of the position size, I suppose, but when I piled on short I could have easily lost more than that if we had a quick reversal. According to this measure, I returned +6.3R on this trade, but I don’t know that this is a fair number. Any ideas on how to track the risk on these plays?

Sadly, this win was only able to bring me to within $5 of being green for the day. I ended barely down, but I got practice in a StreetSmack scalp, so that was awesome. I should have pressed more on my pile-in timing and also on my ultimate position size (I could have traded more shares), but that will come in time.

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 long awaited Q&A document summarizing Wallstreak user StreetSmack’s method of scalping short is here!

BEWARE DANGER CAUTION

You can really lose money fast using this method! This way of trading is dangerous, and could even be called “Wombat Crazy”, and is therefore not recommended for anyone. Trade this way at your own risk!!

Click here to download the document.

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

In looking over my charts from the last few days, I’ve come up with some more thoughts about StreetSmack-style short scalps.

What To Avoid

In my very limited experience, I typically watch a very short timeframe on these scalps, on the order of a few minutes. I’ve noticed that if there’s a lot of volume or choppiness at the (potential) top of a move, there’s no edge in entering there. Price could go either way. High volume means that sellers in size were met with buyers willing to take on positions in size. The bull / bear battle is not resolved at that point. This is different from the typical capitulation volume spike (like Jamie talks about) that indicates direction change. Here’s an example of why:

Notice that in the 15 minute chart, the volume spike does foreshadow a trend change, and it fully appears within the next 30 minutes. However, the 2 minute chart resolves the action of that 15 minutes into smaller pieces, and you can see what is happening with better resolution. The 2 minute chart shows that if you went short under the red candle after the volume spike, there was still another point to go before the ultimate top was reached. This was a time of high risk and uncertainty. The bull / bear battle was still being fought at the true time of the spike. The next few minutes resolved it, when price made a higher high on decreasing momentum and volume dried up. There were no more eager buyers at the new highs–upward momentum stopped. There were also no eager sellers in any size, so for a moment the stock is hanging in midair. This is the low risk, high reward spot! Shortly afterward, the stock went down, and selling pressure took over, and there were only red candles for the next 2.5 points, with at least a 5:1 reward-to-risk ratio.

(Here’s a larger version of the 2 minute to study if you’re interested)

Conversely, if there’s too much consolidation that occurs at or after the potential top, you also don’t have an edge scaling in here. The stock is either being accumulated or distributed by traders, and you can’t really tell which is happening until it breaks. Your odds are 50-50. This happened in the 2 min chart above from 10:30 to 10:50, and the stock broke out–it was accumulation, or at least a pause that was met with a new wave of buying interest that was unpredictable. You could try to short the breakdown, but narrow ranges mean less on shorter timeframes, and you’re better off being a 15 minute or longer “dummy” trader if you want to play that way.

What To Look For

A fitting analogy for what I’m looking for in a good parabolic top setup is a tailslide in an aircraft:

Zoomie can probably describe it less mathematically, but here goes: In a tailslide, momentum decreases until the aircraft reaches the apex, and for a moment the vertical speed is zero. The plane then reverses in it’s original attitude in a very gentle manner. Once speed picks up a bit, the aircraft tumbles back over and then begins to accelerate into a descent. You want your stock to do the very same thing! Upward momentum should slow, price should pause, and gently retreat. Next comes a tumble after the apex, and you want to enter here on a bit of strength, not short weakness or you could be walking into a bull / bear battle about to unfold. The stock will then start to accelerate into the downtrend, and you can ride it out.

Notice what the flight instructor says in this video:

“We don’t fight it, just let the airplane fly, power up, then we recover.” “If we try to force the airplane at slow speed it fights us.”

Don’t fight the stock! Don’t force the trade! Don’t try to short it when it’s still chopping around, and don’t chase a breakdown, either. It’s a graceful maneuver both in the air and in the markets. Just let the stock “fly” (stall out and gently reverse), power up (scale in) and ride the leg down. In my opinion, a choppy, violent, high volume peak should be avoided in the spirit of trading only the best setups. I want to pull off a tailslide.

What To Do and What Not To Do

Here’s a stock I traded poorly the other day–KMD. I identified a good entry (that I didn’t take) as well:

This is what I’m going to try to capture in my short scalps in the future. I’ll post the set of paintbars I come up with to help visualize this strategy better when I get them programmed. Comments and suggestions are welcome.

Watch this post's video on Youtube

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

Most days I trade part-time when I get the chance from work. Today I had the day off and nothing else to do, so I traded my first full-time day as a prop trader.

It was the hardest I’ve worked in years!! I placed 39 different transactions through a web-based interface, all from a single computer monitor. I was flying around windows and spreadsheets, charts–If I ever go full-time, I’ll buy another monitor and get better-than-free tools immediately! Plus, with the Fed jacking the markets up it was a crazy day. I traded almost $200,000 worth of stock today; there’s your trivia for the day.

I decided to crank my risk up as I discussed yesterday and play StreetSmack Style short scalps. At the open, we gapped down so hard that I faded it and went long CFC:

I went long as CFC went above the high if the first few candles with a stop at the day’s low. I added and removed at a few points, got confused and tried to sell some and ended up buying instead towards the end. I had no idea where I stood at that point risk-wise, so I just closed it all out at the purple line. Whoops.

The rest of the trades were short scalps. My worst case drawdown was -11%(!!) of my equity, and I finished up 6.7% on my equity when it was all over. Maybe the risk was cranked up too much (ya think)? Anyway, I’m glad to finish green on a day like today.

My paintbars served me quite well. They did the heavy lifting of telling me when to enter the first part of the position. I added inconsistently and bailed on some trades earlier than I should have, so my execution was off, but hey, it’s a new strategy for me. I depended on people calling out parabolic runners on Wallstreak, as I have no scan for those yet (Trade Ideas gets blocked by a firewall, so I can’t use that). Stewie made a dollar gainer scan on Prophet.net that he was using, so I’ll have to see if I can come up with something there.

In any event, I didn’t exactly follow the rules I set out for myself yesterday. I tried 8 short scalps–here’s the charts of the trades, some good, some bad (lightly annotated):

I’ll post an analysis of my rules and any changes I’ll make (I have a few ideas) over the weekend–for now, I need a break X_X

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 just coded my new trading rules for short scalps into a set of paintbars, and looked at the charts for many of the names called out today on Wallstreak by StreetSmack. A gray arrow above the candle means that momentum is slowing, so get ready. A red arrow means that a new downtrend is in place, and it’s safe to scale in to the trade.

Look at this:

I need to tune them a bit still to weed out a few false positives and some missed entries due to technicalities in how I want them to appear, but I can’t wait for trading tomorrow!!!

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 was only able to trade this afternoon from about 2-4 ET. I tried my hand at some more StreetSmack short scalps. I was unprepared for the position sizing and it caused me a lot of problems! You have to scale in small, with the possibility of a lot of

slippage should the upward momentum resume and you have to get out. You also have to know when to pile on more size when the stock rolls over without getting whipsawed. Exits are the easy part, as you take partials as you bounce on the way down.

I traded the action well enough, but my position sizes were all wrong. In the heat of the moment, I thought that my positions were larger $-risk-wise than they were–I bailed out of a stalled scalp in ICON that would have yielded almost a point, all to save a loss way smaller than 0.3% of my equity. When the dust settled, I was up 0.4% on my portfolio after 5 positions. The dumb thing is, I lightened up on my last one in DBD (due to my perceived losses) that turned out to be my big winner. Still, I’m glad I at least didn’t lose money today. All of the trades I took would have been profitable if I hadn’t been shaken out of a few of the positions.

Here’s the charts:

STC:

ICON:

DBD:

I’ve been able to think it all over and I’ve come to a few conclusions. The “Dummy” trading way of managing risk doesn’t work for this type of play. There’s no defined “narrow range candle” to play against and precisely size your position. If you try, you’ll get whipsawed out. The “win rate” of these setups approaches 100%, if by “win” you mean that it eventually drops off in your desired direction–they almost always do–eventually. The biggest pitfall seems to be making sure that the upward momentum has finally died out so that you don’t get suckered in before the pop is over and face a big adverse movement and the possibility that this is the one that never comes back down–nuclear black swan, game over. Since the “win rate” is fairly high, a 1% of equity risk doesn’t make sense to me to use, and there is no set stop level as it were. StreetSmack told us today to concentrate on identifying a top–this is the critical thing, not to short the first breakdown. They collapse fast, but not that fast! Some might do just that, but those will get away. There’s plenty of others!

After all these thoughts, for tomorrow, I intend to follow these rules:

ENTRY
Do not enter until a Momentum Oscillator has changed from green to red (tends to happen first)
AND my HMA/EMA trend indicator is indicating a downtrend (tends to happen second)
THEN start to scale in larger size near the downsloping 5-ema to get better prices (a conservative entry for now)
ADD more if price again retraces to the downsloping 5-ema underneath your last entry point

POSITION SIZING
Maximum position size based on spread between entry to high of move will be NO MORE THAN 5% of my equity (I’ll start in the 2% area and work my way upwards If I’m doing well)

RISK CONTROL EXIT
Exit full position if price goes up to make a new high and watch for the setup to appear again–I was wrong about the timing.

PROFIT EXIT
Scale out as downward move shows support near fib levels or pivot points. Be less aggressive taking profits on second half, allowing trade to run further if possible.

The natural bear in me is excited about this method, and I see a ton of potential here. We’ll see how I do tomorrow!

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

A breakout in my PnL, that is!

I was Martha for most of the day yesterday, grinding a +1.7R gain in ACH away to zero.

Here’s the ACH trade for +1.7R:

The other four after this were uneventful, just stopped out. Still, It sucked to be 1 for 5 and to have lost all that ground. Then, StreetSmack pointed out CT as a candidate for his short scalping strategy. It moved in a parabolic manner to the upside, and once the buying looked like it ebbed, I went short. I was in the trade for 8 minutes, and netted +5R. It was incredible! I got a bit lucky on my entry timing and the severity of the drop afterwards, but I like the idea and I’m going to study it more in the future as one of my strategies. I watched the 1 minute and price and volume during the trade, and took a partial when price stalled for a minute as indicated by the light blue line:

Keep in mind that’s a 1 minute chart! This play fits my trading strategy very well–I’m there to enter at an inflection point, where price changes from uptrending to downtrending. I buy-to-cover at the point where people are selling in capitulation, puking out their position, in a price and volume spike. I love it! Also, the candidates scream out at you, so they’re not hard to find, just like trading gaps–that’s a plus to me. This play is dangerous, and you have to be quick and have experience, but I think there’s a lot of potential there.

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