Why today’s Gap up is significant

Of course, all gaps are significant, and we have had a few recently.  Analyzing the weekly and hourly charts shows some interesting characteristics of this move.

I’ve mentioned a few times that in the short term, if the SPY can get over the 121 level, it would signal a new uptrend and new highs.  It looks like that’s exactly what happened.

The market has moved comfortably over 121, the 23MA has crossed over the 50MA on the hourly, and the next key resistance short term is at 124.

More importantly, in my opinion, is the weekly chart:

The pullback of the previous couple weeks brought the SPY back to the 200MA of the weekly, and the strong move last week bounced it off that level on strong volume.  This is a key area here for couple different reasons.  Not only is the 200MA in this area, but the 61.8% Fib retracement level of the high 2007 to low 2009 bear market is around 123, and the market had struggled with this area earlier this year.

This gap up (should it hold) will put some distance between the SPY and these key resistance areas (which will now become support).  I believe this uptrend will continue unless some unforeseen events occur and drop the market back below these levels in the near term.

In any event, ignore the noise, and follow the charts.  There are lots of opportunities out there.

Trade well.

Favorite setups from ST50 for week of 11/29

I hope everyone enjoyed the weekend.  Should  be an interesting week coming up.  Futures are up on ‘strong holiday sales’.  Ireland accepted the bailout, and things are ‘interesting’ in the Yellow Sea.

The SPY short-term is in a downtrend and has hit resistance a few times at around 120.25.  A move above 120.90 – 121 area would convince me that we are in the beginning of a new trend up.

This week’s Stocktwits50 list is absolutely fantastic.  I’ve looked over the names and I’ve come up with over 30 potential candidates.  In the interest of space and time, I am not going to regurgitate the entire list here.  The whole idea of these posts is pick the best of the best.  So, for this week, I will post the name of the stocks I like:

ACTG
SPRD
SHS
ATML
AREX
PXD
PCLN
MIPS
FOSL
ALV
GGAL
CPX
PCAR
LINE
WBC
TPCG
ARUN
ROK
AEZ
WLT
XXIA
BJRI
MGA

See what I mean.  You can literally throw a dart at this list and come up with winners.  I will try to post some individual charts from this list with entry points and profit targets during the week if and when I see or get into any of these stocks.

Have a great week.

How do you eliminate fear from trading?

Fear is one of the most difficult obstacles in trading.  Fear of losing money.  Fear of the unknown.  Fear of missing out.  it is the root cause of self loathe, self doubt and self sabotage.

I don’t really know if one can ever trade without ‘some’ element of fear - the key is controlling and channeling this strong emotion to become a consistently successful trader.

Discipline brings confidence.  Confidence overcomes fear.  But over-confidence destroys your account.  It’s a vicious cycle.

Some successful traders learned the business from the very best tutors and mentors.  So, they know what they have works and it reduces the ‘fear’ emotion.

Other traders have been trading for a long time and have had the financial means to sustain their ‘education’ of trading and have gained the proper knowledge and experience to overcome fear.

But what do you do if you are just starting out?  With a limited account?  You’ve purchased or discovered the best trading system and now it’s time to put it in action.  You’ve created a demo account and have been successfully paper trading for a while.  Now it’s time to go live.

After your first trade or two, you quickly discover things about yourself you never knew.  It’s not quite the same, is it?

Here are some tips that I think can help a trader overcome fear of trading:

1. Perhaps the most important factor: Accept the fact that you might lose on any particular trade.  Embrace the risk – if you do not (or cannot), then trading is not for you.
2. Start with small amounts, gain the confidence in your system and move your way up to larger positions.
3. Know your risk: Do not enter a trade without know EXACTLY where your risk is (stop).
4. Have an EXIT strategy: Not only do you need to know your risk, but what is the goal of a trade – Profit targets.
5. Do not trade with money you cannot afford to lose (like rent or mortgage money).
6. Once in a trade – do not change the rules.  I’ve mentioned this before, but it is amazing how many traders deviate from their plan once things do not go right (or even if they do go right).
7. Work in a stress free environment where you cannot be easily distracted during trading hours.  Causes mistakes and mental errors.
8. Never be afraid to take the next trade.  After a couple of losses you might be scared to take the next trade (unless your plan dictates you stop after X losing trades or $).
9. If you are unsure of the market or it’s direction, not taking a trade is not a bad idea.  Sometime the best trade is the one you did not take.
10. Never be afraid to ask for advice.  There are hundreds of awesome traders on Stocktwits who gladly make their time available to help and assist other traders.

As always, please make sure you have a plan and are following it properly.  It is the founding cornerstone of your trading career.

Stick to the plan and you’ll be alright.

Have a great weekend.

Quick update on last week’s ST50 picks

With a shortened holiday week, and couple of nasty days for the SPY, some of the picks worked out very well.  Others did not trigger yet, but did not go down.  A very good sign.

TRS: Long over 18
Triggered and currently sitting at 20.33 – over 12%  gain

EXPD: Long over 52
Triggered and reached first target of 53. Currently at 52.85 and looks good.

MSB: Long over 42.50
Triggered and reached first target of 45 – gain of 5%

AREX: Long over 19.25
Did not trigger yet but looks good. Setup still valid.

APKT: Long over 44.30
Triggered and reached first target of 45 with high of 46.90 – gain of almost 5%

CMI: Long over 94.50
Triggered and reached first target of 98 – gain of over 3%

UAL: Long over 29
Triggered and has not reached initial target of 30.50 yet. Setup looks very good.

LFL: Long over 31.80
Did not trigger yet but setup looks good and still valid.

HUSA: Long over 16.30
Triggered and has not reached first target of 17.30 yet. Setup look ok, but I’d probably be cautious with 2 consecutive dojis.

I’ll post new recommendations later.  Have a great weekend.

Happy Thanksgiving

I hope everyone is having a great week so far.

After living in the US for 20 years, I wanted to reflect a little bit and share what Thanksgiving means to me:

1. I wake up everyday and I am thankful that I live in a country like the United States of America.  I don’t think many people appreciate or understand how good we have it here until they visit and/or live overseas.  I’ve lived in 3 continents – so I know a little bit about this experience.
2. I am thankful that I live in a place where I can express my opinion without fear of persecution.  Anyone can practice their religion without fear of isolation.  I can express my views on politics without fear of going to jail.  I can vote and my vote actually counts. Whether our biggest differences are Democrat or Republican, MSNBC or Fox News, Tea Party or Liberal, Green Party or Independent, the fact that we can express these opinions in blogs and tweets freely, in a civilized manner, and without fear of retribution is a right not enjoyed by many people in this world.
3. I am thankful I live in a country where you can make something out of nothing.  Opportunities are endless and limited only by your imagination and hard work.
4. I am thankful that we live in a country where we take things for granted that others do not, like security, medicine, justice, electricity, water, and the most basics of human rights,
5. I am thankful that I have my health and am surrounded by people who mean the most to me in my life.  Some of us do not have that luxury.
6. I am thankful that I’ve gained the proper knowledge and experience to do what I love most – trading, and be rewarded nicely for my hard work.  And I can share these opinions and ideas with others.
7. I am thankful to the men and women of our armed forces who follow every order and put their lives in danger to protect our lives and liberties.

America is the melting pot of the world.  We come in all sizes, race, religion, gender, expressions, opinion.  But we all have one thing in common: we all love this great country of ours and there is no hurdle that we can not overcome as a nation, in good times or bad.

As the great Abraham Lincoln quoted:

“That this nation, under God, shall have a new birth of freedom, and that government of the people, by the people, for the people, shall not perish from the earth.”

“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves”

Let us not destroy ourselves.

Have a safe and happy Thanksgiving everyone!

Favorite setups from ST50 for week of 11/22

I hope everyone is having a great weekend.

Last week the market continued with a correction with a rough day on Tuesday, but stabilized and moved higher on Thursday and Friday.  The hourly chart of SPY is showing some resistance at 120.35 and 120.90.  If we can clear these levels, then I believe the uptrend resumes and eventually make new highs.  It is not uncommon for the Santa Rally to begin the week of Thanksgiving.

SPY Hourly:

SPY Daily:

There are some fantastic setups again this week from the Stocktwits50 list.  Way too many for me to include all in this post.  So I am picking what I believe are the best setups:

TRS: Long above 18

EXPD: Long above 52 with first target around 53

MSB: Long over 42.50 with first target around 45

AREX: Long above 19.25 with first target around 21

APKT: Long over 44.30 with first target around 45

CMI: Long over 94.50 with first target around 98

UAL: Long over 29 with first target around 30.50

LFL: Long over 31.80 with first target around 32.80

HUSA: Long over 16.30 with first target around 17.30

Please do not forget to do some more research if you decide to use any of these setups, such as any news announcements, earnings, etc.

Have a great week.

Favorite setups from ST50 for week of 11/15

I hope everyone is enjoying their weekend.

Well last week we had a pullback that lasted more than a single day.  Looking at the daily chart of the SPY, we actually had the worst week since early September.  Quite a pullback, huh?

Actually, there really is nothing to panic about yet.  We are still above the upper trendline on daily and weekly, and still above the 20MA on daily.  Volume was a little higher last week, but nothing that would raise all sorts of red flags.  The selling was not of the panic type on massive volume that we see in a top, or that would indicate a trend change.  So for now, it is my opinion that we are still in buy-the-dip mode.

ACTG: Bull flag setup on low volume pullback.  Long over 26.70 with initial target around 28-28-50

QCOR: Bull flag setup on low volume pullback.  Long over 13.20 with initial target around 13.70

MIPS: Low volume pullback.  Long over 14.90 with initial target around 16.50. Beautiful looking chart – earnings are out were great.

ATML: Low volume pullback.  Long over 10.25 with initial target around 11.  Massive gap is still intact.

PCS: Sideways consolidation on low volume.  This stock wants higher.  Long over 12.25 with initial target around 12.75.

AXTI: Bull flag setup with low volume pullback.  Long over 8.40 with initial target around 9.30.

AVGO: One day late in finding this stock.  Long over 25.85 with initial target around 26.50

CNH: Long over 44 with initial target around 46.

ROVI: Low volume consolidation.  Long over 53 with initial target around 54.50.

TZOO: Low volume consolidation.  Long over 36.50 with initial target around 38.

XXIA: Bull flag with low volume consolidation.  Long over 16 with initial target around 17.50.

As you can see, quite an extensive list tonight – and I’ve left out a few good looking charts too.  But these I believe look poised for continued up trend, unless the overall market decides to collapse next week.  As usual, please do your due diligence if you decide to pursue any of these stocks and watch out for news announcements, earnings, etc.

Good luck and good trading next week.

Why traders need a killer instinct, among other things…

Trading is one of the most difficult professions that can be undertaken by any person.  Period.  This is especially true for beginners who get so discouraged after a while that they give up usually within the first year of trading.

The odds are stacked against you as a trader, and it is a zero (even negative) sum game.   Almost every element that is critical to your success is out of your control and in the hands of the market.  The ONLY things that you, as a trader, can control are when to get in, and when to get out.

Furthermore, not only is the fate of your trade in the hands of the market, but perhaps, the biggest threat to your success is yourself – self-sabotage, trading out of fear and greed.

Developing a killer instinct in trading is absolutely critical for long term success.  This means having and developing the ability to consistently make profitable trades and overcoming all the challenges that almost all successful traders experience.

By killer instinct I don’t mean destroying other traders – it simply means having the discipline and confidence to execute your trades according to your plan.  It is something that can be taught, harnessed and developed through hard work and experience.  As such, here are some points that I believe help in creating and developing this instinct:

1. Perhaps the most important factor – create and use a TRADING PLAN.  I cannot overemphasize the importance of this point.  If you don’t have one, create one immediately.  Print it out and read it everyday if you have to.
2. Discipline – the discipline to execute your trades according to the plan.  The discipline to stick to your plan through good times and bad.  If you have done your homework, you’ll know that every system has drawdown periods.
3. Never, EVER, make up the rules or change them on the fly.  In the heat of the moment, it is easy to ‘tweak’ and bend the rules.  Especially if you are on a winning streak.
4. Never take the ‘revenge’ trade.  Imagine this – you take a trade, it comes to within 1 tick of your target, then reverses to hit your stop.  You immediately reenter the market (maybe in the opposite direction) only to have another losing trade.  There will be losses – as a trader you need to accept and embrace losses as part of this business.
5. Never move your stops (especially to increase risk) in the middle of a trade.
6. Never chase an entry.  If you’ve missed the trade, there will be others.
7. Understand how emotions and Psychology affect your trading decisions.  You are the greatest risk to your success.  It is not the market, it is not the dog, and it certainly is not ‘THEM’.
8. Self-analysis – a must for every trader.  Keep records of your trades.  Understand your tendencies, strengths and weaknesses.  Analyze your system and keep track of its performance every day, every week and every month.
9. Set goals – what do you want out of the market?  What is it you are trying to achieve.  Do you have a daily goal?  A weekly goal?  Whatever it is, know and understand what it is you are trying to achieve.

Killer instinct comes from discipline, and the confidence knowing that your trade will be ‘right’ more times than not.  You are trading the probabilities.  There are no guarantees, just like any other business.  You need to do your homework and execute your plan accordingly.

There are opportunities to make a profit every single day in the market.  And once you achieve that consistency, trading can be a lot of fun.  Most importantly – never give up.

Have a great weekend.  I’ll post my Stocktwits50 recommendations later today.

Favorite setups from ST50 for week of 11/8 and other picks

I hope everyone is having a great weekend.  Last week the market reacted very positively to all the news events, from the election results, to the Fed to the NFP.  Some major resistance areas were cleared on the SPY and as the chart below shows, the next major resistance area is 126-127.

Most impressively, and importantly, the financials came life and broke out on huge volume as can be seen by the chart of XLF:

This not only validates the rally, but in my opinion, gives it new life.  I believe we are starting a new wave/trend up.  However, having said that, this market needs some consolidation period or slight pullback to digest these gains.  The market still needs new catalysts to go higher, and there is plenty of momentum to go up.

I took a look at the Stocktwits50 list today.  Twice.  All the stocks on this list have fantastic charts.  The only problem is that most (not all), are making new highs on lower volume, with some major divergence between price and MACD and/or Money Flow.  I am finding it very hard to get on board or recommend most of these stocks at these levels, without some sort of low volume pullbacks/consolidation.  The most promising ones I found for next week are below (only 2):

NXTM: Huge breakout last week on very strong volume. Long over 22.50 on volume.

VHC: Low volume consolidation the last couple weeks. Looks poised to go higher. Long on break of upper trendline around 19.20.

In addition to the picks from ST50, I believe we will see some of the stocks that are not at 52 week highs but broke out last week (like the financials) make a move in the coming weeks.  Some picks I tweeted late last night are:

COV
FWLT
HEV
IO
ITT
JEC
JRCC
KSS
WFC

I hope you have a great week of trading and as usual, please do your due diligence on any stock you wish to pursue, including earnings dates, news releases, etc.

Thoughts on trading this week

I wrote last week that I would not be trading much stocks because I felt we were at a critical point in the markets and I wanted to see the current levels of resistance broken before getting back into holding stocks for more than a day trade.

Well, not much has changed and this week is even more critical since the elections are tomorrow, the Fed on Wednesday and Non-Farm Payrolls on Friday.  If ever there was a catalyst to ‘sell the news’, it is this week.  Adversely, if the markets do not go lower, then we will see a new leg of the uptrend begin.

So, I am in wait and see mode and will concentrate on day trading the Crude Oil futures (CL) for the most part, perhaps some Euro (6E) and Russell (TF).  The plan is to trade smaller sizes and take quick profits.  If possible, finish early and take the rest of the day off.

I did not go through the Stocktwits 50 this week – I’ll resume next weekend once we get a clearer picture of how the markets want to move.

Please exercise your right, and privilege to vote on Tuesday.

Have a great week.

Lessons I learned from Trader Mike

When I started daytrading, I spent countless hours trying to find and learn from successful traders. I would search the internet and scour the forums to find experienced traders who have gone through the ups and downs of trading and were willing and humble enough to share those experiences with other traders. Of course, such magnificent traders are a dime a dozen on Stocktwits today. But a few years ago, one had to dig a little harder to find these traders.

One such trader was Trader Mike who has an excellent blog. It used to be a daily routine to visit his site, where I learned quite a bit about trading, Psychology, other traders (like Maoxian), keeping good records, self-analysis and keeping things simple. I also learned that many successful traders (if not all) follow quite similar paths of mistakes, experience and eventual success. One of my favorite posts is How I Became Such a Great Trader where he shares some valuable insight on his past experiences and some of the things he does to stay sharp.

Another lesson I learned is that while it is critical to focus on the technical and physical aspects of trading (trading plan, setups, charts, etc.), it is also very important to focus on the emotional aspects such as Psychology and self-affirmations. Now what's that you may ask? Trader Mike was not shy to share that he listens to a trade affirmations CD to make sure his mind stays 'right'. After purchasing the CD and listening to it, I understood why. I have converted the CD to MP3 and I listen to it as often as I can (on my iPod or PC). Here is a clip below:

Some golden nuggets of advice from Dr. Elder on Psychology

Dr. Alexander Elder has written some excellent and practical books on trading and psychology of trading, among them Trading for a living, and Come into my trading room. I’ve read his books and recommend every trader do the same.

However, in addition to reading his books, I also have Trading For a Living on CD and I make an effort to listen to it as often as I can. He emphasizes a lot on psychology of trading, as do many experts like Mark Douglass in Trading in the Zone (another must read).

Below is a clip from Dr. Elder’s book on Individual Psychology. In it, he offers some excellent advice for the average trader and some common mistakes that traders make (over and over again).

Some of my favorite quotes are along the following lines: The goal of a good trader is to NOT make money - it is to trade well. Money follows... Just because you have a successful system does not mean you will make money...

Favorite setups from ST50 for week of 10/24

I hope everyone is having a great weekend.  As usual, there were some fantastic and endless ideas and analysis on Stocktwits this weekend.

Let’s start by taking a look at the weekly and daily charts of the SPY:

Price action is right at the weekly 200MA of around 119, and the resistance areas on the daily can clearly be seen on the chart as well.  The persistent trend keeps grinding higher in the face of some overbought conditions, but as we all know, that does not necessarily mean we will not go higher.

Personally, I will be exercising some caution next week and will not hold any overnight positions should the indexes exhibit any signs of weakness.  Regardless, there are still some great looking charts out there.

Please do you due diligence on the picks (such as earnings, news releases, etc.).  The recommendations are only meant as idea generation and my own personal analysis on these stocks.  Additionally, please use proper money management should you decide to get into any positions.  This are my weekly picks from the Stocktwits50 list:

APKT, UNP, INFA, CGNX, TIBX, INTU, CMG.  Entry points and commentary on the charts below:

Good trading and good luck next week.

CL Analysis for coming week

Good morning – I hope everyone is enjoying their weekend.

Since I’ve been trading the crude oil futures a lot more these days, I wanted to share my thoughts on the longer term charts and some scenarios on how it might trade next week  I will start with the Daily chart:

The daily shows a very obvious tight range/consolidation since early October between 79-84.  The bounce off 38% Fib retracement shown on the chart is bullish and sets up a bull flag scenario with prices approaching 84-86, and eventual resistance in the 90-92 area.

Should it fail to breakout higher from this range, I would look for the 50% and 61.8% Fib levels to be tested, and if these do not hold, I would look for support in the 67-69 range.

Now, let’s look at the hourly chart below:

The tight range channel can be clearly seen here as well and the unexpected move late on Friday afternoon (on volume, I might add), brought the price right back to the top of the channel.

I believe this sets up a move above this channel and back to the 84 area in the very short term, but it all depends on the reaction of the markets to the G20 meetings this weekend.  Where it goes and how it reacts at the 84-85 level will determine the outlook for the next few weeks.

In any case, as I have written many times on this site, I am not in the business of predicting where prices will go on Monday or Wednesday next week or any time in the future.  I merely follow price action, understand where my support and resistance areas are, and take the high probability (and lower risk) trades.  Analyzing the chart setup helps me plan my actions and my trades during the week.  But I will not hesitate to change my bias at any given time should the chart show any significant changes.

I hope this helps.

Good luck and good trading next week

Anatomy of an Intraday Chart of CL (Revisited)

I wanted to follow up on the post from this morning regarding CL December futures 5 min intraday chart.  Below is an updated end-of-day chart:

Points 1-6 were discussed in the previous post.  However, on point 6, the support zone has moved since the chart was in an uptrend all afternoon.

7. 7a and 7b show the price touching the support area around 80.60 with the occurrence of a divergence on the MACD.  A bounce from here would give very good odds for a long entry, which is exactly what happened.

8. Minor resistance area was taken out around 81.30.

9. Major resistance area was taken out around 81.60 and price continued to 82.10.

Strange action so late on a Friday afternoon for CL, but it is what is. All we can do perform the analysis and make real time decisions on what we see.

We’ll see what Monday morning brings.

Good trading.

Update on my ST50 picks this week

I want to start following up on my picks from the ST50 each week and report on their performance.

While many stocks on this list did extremely well, this is a way for me to record my results as well.

Here goes.  These were my picks from the weekend:

CTSH : Setup was long over 66.80 (sorry, typo in the chart). Setup triggered yesterday and was good for at least $1.45 (2.2%)

AMZN : Did not trigger until today (post earnings and was a big winner), good for at least $5 (3%)

LXK : Triggered long at 46 on Wednesday and was good for about $1.30 (2.8%)

NBIX : 8.25 was triggered on Tuesday and was good for about 40c (4.8%)

MIPS - probably my favorite setup: Triggered at 10 on Monday and was good for around 50c (5%)

All in all – not bad at all.  But then again the market has been unstoppable.  Hope some of you caught some of these moves.

I’ll post some more charts over the weekend.

Have a great weekend.

Anatomy of an Intraday Chart of CL

Good morning.

I wanted to post and analyze a 5 minute chart of the CL Crude December futures.  Earlier, I talked about rising trendline, breakout, false breakout, etc. and wanted to share what exactly I was looking at.  Below is a 5 minute chart of CL:

There are 6 areas I’d like to focus on:

1. This is a horizontal trendline at 81.60, which also coincided with a major resistance area.  Usually at 9AM EST, there is a heavy move in one direction, and the thought process was if it breaks this level on some volume, it would breakout.  Which it did.
2. After the breakout, the next candle formed a Doji right on minor resistance at around 81.75.  At that point, some profit was taken and stops moved to breakeven.  Subsequently, the next candle dropped the price right back below 81.50 and the initial breakout/resistance area, signaling a false breakout.
3. Shows the rising trendline Tweeted about, going back from around 3AM EST.  As soon as it closed below it after 9:30AM, it moved lower to the first support area of around 80.90-81, where it has bounced briefly.
4. Shows the are of minor support at 80.90-81.00.
5. Shows the next area of support at 80.50-80.60.
6. Shows the next area of support at 79.35-79.50.  This area is a major magnet should CL decide to break below 80.50.

I hope this was educational.  Whatever indicators you use in your trading, on whatever timeframe, introducing and using trendlines and support/resistance zones will greatly enhance your trading, not to mention money management techniques (knowing where take profits, etc.).

Please do not hesitate to drop me a comment or tweet if you have any questions.

Good trading.