I almost didn’t trade today (was only watching the markets in the late afternoon), but I did find a tiny last-minute scalp to take. It was a winner, but not much of one.

In the video, I talk a bit about the way this scalp set up, and how I chose my entry. This illustrates an important concept of very short-term market dynamics, that is also a big part of my scalping edge. Hopefully this helps people time their entries better if they are wanting to give scalping a try.

The trade was on American Airlines (NYSE: AMR). I noticed that airlines in general were doing good volume today, so I decided to focus on them with the time I had left.

Stocks Mentioned In This Article
Stock	Links
AMR	| |

I was five for five today, with all wins. Feels good after yesterday, when I was only four for seven. In the video below, I go over all five trades, and one loss I had yesterday (since I was too sleepy to make a video yesterday). The trades today were on BEAV, RCII, COST, RBC, and CROX.

It’s still really tough out there for my style of trading. I’m in guerrilla mode, taking profits very quickly. Yesterday, I was trying to adjust to the chop by giving my trades a little more room to move… the result was that my losses tended to be larger than my gains… not exactly a winning formula! So, today I used tighter stops again and just got really aggressive about locking in gains. I swear, every time I decide I want to try to ride winners longer, the markets kick my ass and turn me back into a scalper.

I made some adjustments to my two main paintbars (the trend following one and the mean-reversal one) last night, which seems to have made them much more effective. I am almost ready to publish them here if anyone wants to play with them. They are far from perfect, but they do let me know when lots of indicators are trending or rolling over. It’s good to help reinforce my decisions.

I was going to take the day off, because everyone seemed to be focused on AAPL and BIDU (neither of which I like to trade), and the markets had another gap opening. Since I usually take a couple hours off each Thursday anyway, I thought it would be nice to just extend that outing.

But, I was in a good mood when I got back home around 2PM EST, and decided to try to find a trade in the last two hours of trading. I found two trades, and took one of them. Both would have been winners. Here’s the video about the trade I took, in Psychiatric Solutions, Inc. (Nasdaq: PSYS).

I didn’t mention it in the video, but my entry corresponded to a long signal on my short-term PnF chart. I always check all of my charts before taking even a tiny trade like this! Any warning signs, and I usually choose not to put my money in harm’s way.

There was some nice discussion on trend following today on wallstreak. The biggest thread was here, but there were others (all in the futures room).

Stocks Mentioned In This Article
Stock	Links
PSYS	| |

As I mentioned not long ago, I’ve mostly stopped posting my day-to-day trades. There are just too many of them to spend time commenting about them all. It was easy enough when I made 10 trades a month, but I made 5 trades today alone (4 profitable, 1 loss). Because my recent article about stochastics was on my mind, though, I made a short scalp in KBR Inc. (NYSE: KBR) that I wanted to share.

Two reasons:

• I got interested in the trade by noting what a stochastic on the 5-minute candles probably would look like. I have been saying you can just eyeball this stuff, so I want to provide proof in the form of real trades.
• I wanted to make sure everyone knows that there is no more uptick rule, since the news about it has been sort of muted, from what I can tell.

The Charts

First off, note that KBR was in an uptrend overall. I mainly was wanting to go long this stock (and did, earlier in the day, in fact).

But, the intraday PnF chart showed that the uptrend it was on might be giving way:

Here’s the relevant portion of the 5-minute chart, that made me decide to go short:

Numbers below correspond to the numbers on the chart graphic:

1. We had a peak (local high) with a weak close. I imagined that the stochastic reading on this peak would not be overly strong due to the tall wick.
2. A second peak (local high) forms, only this time with an even weaker close. Even though the first high was already weak, this extremely weak close would lead to a divergence on a stochastic indicator. The stock made higher highs, but the stochastics were headed south.
3. So, I shorted the stock at 30.90 based on both the 5-min chart and the PnF chart info. I shorted it on a downtick, and it felt fantastic! Of course, since a market order to sell short still goes off at the bid, the MMs can still hurt you by dropping the bid dramatically at the point of a breakdown. But at least they can only do it once now. With the uptick rule, it used to be possible to have a market short sale hung for 20 seconds while the price falls without you.
4. I was hoping to see 30.76. I chose .76 because it’s one cent higher than round number .75, and I chose that area because the 20EMA was quickly rising toward the .70 area… you can see it as a red line on the bottom of the chart. For a play like this, which goes against the overall trend, I didn’t want to overstay my welcome. One rule of thumb I use is: you can stay in for the same amount of time as it took to form the two peaks. So, since it took 3 candles to make the peak at point 2, I was looking to get out by the third candle after entry. When it failed to make a lower low than the previous candle, I was sure it was time to go, and I got out for a 10 cent gain.

Stocks Mentioned In This Article
Stock	Links
KBR	| |

I started of June in good shape, making 3.5 R by 11:30 EST and then taking the rest of the day off. Hard to beat that (unless you caught the wacky move by NTRI all the way from 66 to 72 and back at the open)!

Trade 1, DCEL

I made a trade literally at 9:30AM today, in the opening minute. Dobson Communications Corporation (Nasdaq: DCEL) was on my Daily Scan as a breakout candidate at 10.69. It opened at 10.68.

Now, normally, I shy away from jumping right into these, because it’s usually too early to tell if substantial volume will be trading in the stock, and too early to see where any potential big sellers might be. But, it gave me some confidence that it traded over 50k shares premarket (if I remember correctly) in a range entirely below the opening price. Good enough. Filled at 9:30AM, some shares at 10.69, and the rest at 10.70. I got back out for a 10 cent gain 5 minutes later. That doesn’t sound like a lot, but it’s a 1% move for a $10 stock, and I didn’t want to press my luck at the open. And besides, it was 2.5 R of gain.

One scary thing I’ve noticed (on scottrade, anyway) is that whenever I trade during the first 5 minutes of the day, the feedback on my executions is delayed somewhat. I guess they have trouble keeping up with the data volume. So, in this case, my platform told me about my buy execution 30 seconds after the fact. Now, as it happens, my order was filled instantaneously and right at the price I wanted, so it’s hard to complain. Except, if the price were to dive during that 30 seconds, I would be unable to sell via my platform (because it doesn’t think I have any shares yet).

Trade 2, AEM

This short trade on Agnico-Eagle Mines Limited (NYSE: AEM) marks my second try in two days to revive ye olde “ema reversion play“. Read that linked post for more detail on the setup, but in any case recall that there are three likely occurrences after price separates from a fast MA at the open:

1. The price keeps moving away, and the MA catches up with it
2. The price consolidates, and the MA catches up with it
3. The price reverses and closes in on the MA

… or some subtler combination of the three. Yesterday, I caught case #3 (the one you want to happen, by the by). Today, I caught case #2. Price drifted around, but never fell hard.

Let’s look at why this was a good candidate. First, on the daily chart, the overall trend is down, but the stock has run up recently. It’s nothing to bet the farm on, but it’s good to note that it would be more and more unusual for the stock not to take a breather, the higher up it runs.

Now, the 15 minute chart. Note that the upper range of the opening bar is 38.02. Note also that the opening bar is wide. So, a short below 38 would be the natural choice. Check out how the second bar is strong, but on less volume, followed by a third extremely weak bar on higher volume.

So, at the close of the third bar, you’ve got a lot of volume trapped above the opening range. They aren’t happy. My hope is that they pee in their collective pants if the price falls under round number 38. This would drive the price quickly down.

Alas, bladder control was the order of the day, and the stock showed bidders willing to step in repeatedly around 37.97 and 37.91. Seeing this, and being no fool, I put in a limit order to take me out for 37.92. I was filled in short order, and took a small profit out of the lackluster action.

As a side note, I was unhappy to see my entry not filled until 37.97. AEM is not a SHO Pilot stock, and is subject to the horrible horrible uptick rule. Oh well, it turned out fine.

Maybe I should have paid more attention to the point and figure intraday chart:

It was not yet showing much weakness at the time of my short. The blue up-sloping trendline was still in effect, though I noted that the movement was getting more erratic (larger red retracements between the green upswings). So that was a warning, but not enough to keep me out of the trade. A little later in the day, this pnf chart gave a short signal (which I’ve drawn in, and which would have given you a few chances to make a small profit).

Stocks Mentioned In This Article
Stock	Links
DCEL	| |
AEM	| |

If you’ve been reading my reviews of my early trades, you know that I was wondering why I don’t trade some of those early ideas anymore. They aren’t bad ideas, really… my execution was just very bad on a lot of them. Today, I traded one of those old ideas.

I woke up late, and missed the first 15 minutes of market action. And worse, I knew I was going to be away from my screens most of the day. I knew I wouldn’t have time to wait for a proper breakout setup, since so many stocks surged so hard at the open. It takes time for them to properly consolidate, and gather more steam. So, I decided that, instead, I’d look for a stock that was running too fast, and short it. It’d be fun and quick, and it also just felt cool to be shorting a stock when everyone was talking about how strong the market was this morning.

About the Setup

So, the idea is simple enough… When a stock has pulled away from a fast moving average (say, anywhere from 5 to 10-period averages would be fine), it is in an unsustainable situation. One of three things will happen very soon:

1. The stock continues higher, and the moving average catches up.
2. The stock consolidates sideways, and the moving average catches up.
3. The stock falls back to the moving average.

So, you find a stock that is over-extended. It has run too far, too fast at the open, and created a big gap between the current price and a fast moving average. When it shows weakness, you short the stock, looking for case #3 to materialize. The risk involved is generally acceptable because you only take a small loss if case #2 occurs, and case #1 is the least likely of the three if you gauge the weakness correctly. I don’t have any backtesting to back up that assertion, but I’ve been looking at intraday charts enough to know that it’s relatively rare for a stock to show weakness, but then go straight up without any meaningful dips.

Today: Navteq Corporation (NYSE: NVT)

In my old trades, I was not very sophisticated about selecting a weak stock. I still may not be great at it, but I think I did a decent job. Let’s look at the evidence I considered for todays NVT trade:

• The stock was running on unusual volume, so plenty of enthusiastic people buying at the top of the opening move might panic and help drive my short to profit.
• We were coming upon the “reversal period” at 10:15 to 10:30ish. A little early for it, but coming in range.
• On the daily chart, the stock had run up more than usual without reversing. “More than usual” is just a pretty sloppy assessment, meaning “much farther than any other run in the last six months.”
  
• On the intraday PnF chart, you can see that the upward momentum slowed down quite a bit at 9:42, when the price crossed 44.00. It then pushed a little higher before falling back down and giving a sell signal. The signal happened to correspond not only to 44.00, but a break of a minor trendline.
  
• On the 15 minute chart, the wide opening candle is all wick above 44. The second candle is green but weak, with a tall upper wick. The third candle drops below 44, giving me my shorting opportunity. It dropped a little over a point to meet the 5MA, and then dropped another point for good measure.
  

When all these things come together, it’s hard not to make the trade, no matter how strong the overall market is! I was a wimp, and got out when I had a 3.25 R gain, rather than waiting to hit the target. If I see enough examples hit their targets, I will (slowly) get more brave with these plays, and possibly refine the way I choose targets. If I start making these plays often, I’ll give them a name and track their performance separately in my stats, as well.

Stocks Mentioned In This Article
Stock	Links
NVT	| |

It’s been a tough couple weeks. First, we had OPEX, and now a holiday weekend. I haven’t wanted to do much of the trend-following PnF-type trades because of it. Hopefully that will change soon. Today, most traders I know have quit for the day already, if they traded at all. I am also done, and I only found one little scalp to trade. If you followed along on wallstreak, you know I was watching CMG but passed on it because there were no shares on the offer near my number. I also waited a long time on VRGY and YRCW before giving up on them.

My one trade was a play on a possible reversal up on KOMG. It sold off hard yesterday, and had a lot less steam pushing it down at the open today. When it pushed above 23 the second time, I scalped it for 8 cents. I was hoping it would run immediately up to 23.20 to test a real “breakout” above a consolidation area from yesterday. But, it wasn’t meant to be. As I mentioned at the time, just after my exit, KOMG fell back down below 23, and kept going down. So, it was good that I bailed when I did. Probably should have shorted it, at that point, come to think of it.

It was a very short trade, so I won’t bother with a chart. It won’t show you anything. All told, 2.33 R. Nice to go into the weekend with a profitable trade! I hope your week was good! May has been a good month for me, as you’ll see in next week’s review post. Unless I really mess up next week, that is!

It’s a choppy, rangebound day today so far (12:17 EST as I write this). I made two little scalp trades, both winners, for a total of 4.77R according to StockTickr. I still have a couple of stocks on my radar, but I think I may just call it a day. None of the other traders I talk to during the day are 2 for 2, and I know better than to press my luck. Plus, I know this sounds stupid, but I had a strong feeling last night that I was going to lose money today. So, I’ve tried to be extra cautious.

Trade 1: USU

So, despite what I just said about being extra cautious, I made a trade at 9:33 EST. Yep, just 3 minutes after the open! So, you know it had to be a scalp, and in fact I was back out in 26-seconds. I used my 30-day breakout scan to find USU pushing 24.44. The chart is uninteresting, obviously.

Trade 2: CTXS

Maybe it was more effects of that feeling that I would lose money today, but I kinda psyched myself out on the second scalp. It was on CTXS breaking 33 for the second time. It had a nice trade rate, and ate through a ton of shares at 33. I should have stayed in it for at least 10 or 15 cents gain. But, earlier it had gotten slammed back down at 33.08, and I let that scare me out for a measly 5 cent gain. It’s decent money for a little scalp, but 15 cents would have been nicer, obviously!

Though I didn’t make a point-and-figure play, I did spot the scalping opportunity on the PnF chart. I’ve drawn it in to show you what I mean:

… point and figure charts are geared toward highlighting support and resistance, which is exactly what you need to be able to find to make most “classical” trading patterns work in your favor. It seemed clear to me that pressure was building up on the 33 level, in this case.

Wow, even though I was gone most of the day (as I am every Thursday), I still made two little trades. I have been very active in May, and am quite pleased about it. No point-and-figure trades today… these were scalps on level breaks. I nearly made 3, but was scared away from XOM by low overall volume.

As scalps, they don’t make very interesting charts, so I’m not going to post them here. I enter all my trades in StockTickr, which produces charts you are always welcome to look at in chart review. The trades were in SWN break of 43.80, and AQNT break of 36.

I’m going to look over my watchlist charts later tonight, and see if I spot any point and figure trades, and see if they would have worked or not. Today looked pretty choppy in a lot of stocks (after yet more up days, and heading into OPEX, it’s not too surprising). I may stick to little scalps tomorrow as well, depending on what I find.

I’ve been watching volume-based charts for the last two days, and I’m pretty happy with them. I think they clarify the overall stock movement when there are long, low-volume choppy periods. Primarily because these long choppy periods more-or-less disappear.

However, to keep an open mind, I’m still looking at all kinds of charts after-hours. And, I’m surprised to report that, today, Point-and-Figure charts would have been better charts to watch for both of my trades.

I have more-or-less ruled out tick charts, because I don’t intuitively understand why I would care about quick trades with no volume. And, if the quick trades carry volume, they will show up in my volume charts. Anyone using tick charts want to defend their honor? If not, consider their honor thoroughly stomped upon.

Anyway, on to the trades….
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I couldn’t run my scans, which left me kind of out-of-sorts this morning. I relied entirely on a combination of trade-ideas, jaiku, and wallstreak for ideas. I ended up making two trades, for two wins. But, the first one was a very close call!

Read the rest of this entry »

I didn’t have many candidates on my screen, so I took a half day. Hope your day was nice.

As described on jaiku, I did find one scalp on LIFC @ 28 for 1.21 R. The chart’s too uninteresting to post. Turns out that LIFC would go on to go almost to 29 before reversing. I got out when the trade rate got iffy.

Over at wallstreak, prospectus and I watched an ATHR setup, but I declined to take it because I didn’t like the way it broke out. However, if I had, I would have gotten at least 50 cents, and maybe as much as $1.50 per share. Wow! It just didn’t match my criteria for a good entry. Oh, well!

So, while I don’t regret ATHR, I do wish I had gotten into XRAY, which Zoomie pointed out in plenty of time for me to get in. I just got sidetracked and didn’t make it.

Today was a strange day in the markets, with few gapper opportunities showing up on my trade-ideas scan. Oddly enough, my overnight scans were also on the light side (the PDF book I generate each night only had 15 pages… it’s usually twice that big).

But, one of the stocks on my personal scans was CERN, since it was edging up against 54.00 as a short play. 6 minutes into the open, it fell to 54 with a 2-cent spread, so I shorted it. I felt good about it initially because my biggest problem with playing the open is how wide the spread can get on stocks. I am allergic to losses, so I stay away from big bid/ask spreads.

I got in at my price, 54, and put my stop at 54.02. Especially since it was a short play, I wanted that sucker to fall hard and fast away from the round number. Initially, I got what I wanted. It fell a good 10 cents, anyway, without looking back up. But, two things were all wrong.

• the volume wasn’t pouring in.
• the spread was getting wider, with no trades printing

As I said on my jaiku post, “when in doubt, get out.” So, even though the markets were looking bearish, and even though the trade was going my way, and even though I would have to eat a 7-cent bid-ask spread… I got out at the market for a 12-cent gain at 53.88 (6R… damn scalps sound impressive in R terms!).

The 3-minute chart:

This is seriously about the best exit possible. I could have maybe gotten two more cents, but the ask never got anywhere near 53.81 while I was in the trade. 53.86 was about the best possible covering price.

I considered trying to get a better price via a limit order, but that has never worked for me. Does that ever work for anyone, and the price doesn’t go on to much better prices? I always say getting out via a spread-splitting limit order only works well when you could have made a lot more money than you did. Maybe others have more luck with it. I’ve found that (in this short-covering case, for instance) it just shows my hand, and makes it look like there’s bullish buying activity with someone bidding for thousands of shares. This causes others to bid the stock up above my bid, and at that point I’ve actually encouraged the price to run away from me!

If you look at the rest of the action on CERN, you can see that it went above 54 for quite a while before falling at the end of the day. So, no complaints. It would turn out to be my only trade today. I went out and ran some errands, but after I was back I still didn’t see much I liked. Hopefully tomorrow will be nicer.

This will be short because (1) I’m tired, and (2) Jaiku is down for maintenance, so I can’t link to all the great conversation there.

It was another frankly messed up day in the markets… with a flat open, and an up Dow with a down Nasdaq and S&P. That’s no fun. Like I’ve been pointing out every chance I get, stocks were very brittle near important daily numbers. No one wants to be the first to buy a stock up higher.

Still, the month is drawing to a close, and the bills I need to pay don’t care what kind of markets we’re having! You know, everyone says you shouldn’t trade when you’re focused on needing to make money, but my bills don’t care about that either! So, I tried to stay as alert as possible, and spot ideas (I normally just kinda zone out or take the day off if it doesn’t look promising). I ended up taking 3 scalping plays, for three wins. Feels good!

As usual, I looked for certain factors to line up:

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As Eyal pointed out, there was not alot going on this morning. Not that I could see, anyway. A lot of my watchlist didn’t do too much. That said, I did get VERY close to taking several trades. Usually, either lack of volume, or too wide a spread, kept me out.

I did make one scalp for 3R in GNTX. Here’s a 5-min view of what it looked like just before I got in:

Looks pretty awesome, eh? Nudged right up against 19. Has “support” from the 5EMA (heh…). Anyway, I scalped it for 3R, but it looks like a decent dummy play, to me, as well The last few 5-minute candles were of narrow range, on a pull back from the HOD, and all that jazz. But, I am not making many dummy trades…. here’s why:

After the move I scalped, it fell right back down, and never recovered. Had I traded this as a dummy trade with a 23 cent stop (to get below the preceeding 3 5-min candles), and somehow had the foresight to get out at the top, I’d have a 1R trade. Since I scalped it instead, I made 3 R. hmm… makes you think, doesn’t it?

People ask me why I take 1:1 Risk:Reward trades sometimes. The answer: because often that’s all you can get! Just because you want 2 or 3R doesn’t mean you’re going to get it. Watch the trade rate on T&S sometime… lately, trading dries up when stocks approach big numbers. Apparently, no one wants to be first to buy a stock higher, anymore. It’s frustrating when you are trying to make money off momentum. Momentum is the child of enthusiasm, and there is no enthusiasm in this market, even though it keeps drifting higher as a whole.

The one regret today: Dave (from StockTickr) pointed out a beautiful setup on NYX. Better, he pointed it out in plenty of time for me to take the same trade. I didn’t, because I didn’t like how wide the spread was. I should have compensated by putting on a 1/3 size position, or something, and piled into it as it fell. As of this writing, I’d have been up $1.50 per share on that short play. Thanks for pointing it out, anyway, dave!