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.

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.

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!

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.

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.

My favorite setups from the ST50 list for next week

I hope everyone is having a great weekend.

Well, it was certainly quite an impressive week with some phenomenal action in individual stocks.  Momentum names were up big, financials took a beating, and solars sold off hard on Friday to give up the entire week's gains.

I still believe there are some warning signs of a a correction - but it has not materialized into actual weakness in the indexes.  On the contrary, the markets held up extremely well in the face of a selloff in Financials and some semis including Intel.

Looking at the chart of the SPY, there are some major challenges ahead.  Some strong resistance areas are coming up in the 120-122 area.  The election is coming around soon, and the majority of earnings will be released the next couple weeks.

It is clear that there are some major hurdles to keep this rally going. It would appear a lot of good news has already been priced in.  But how much good news?  This market has managed to surprise and just like the Energizer bunny, it just keeps on going.

The following are stocks that I will keep on my watchlist from the Stocktwits50 list:

CTSH
AMZN
LXK
NBIX
MIPS - probably my favorite setup

Don't forget to keep an open mind and not be 'married' to a position or an opinion.  Things change on a dime and we must be prepared to adapt appropriately.

Good luck and good trading!

Evolution

Hi Everyone...

It's been over 1 year since my last post on this blog. My, time does fly...If you are new to the blog, welcome. I hope you will find some of the past entries useful and interesting. It is my goal to revive this blog and post my thoughts and analysis about the markets in general.

A lot has happened during this year. The sky has not fallen as many predicted. We had one of the most powerful rallies in the stock market in generations and the market in general is still attracting many traders/investors. We had the 'flash crash' (may it never be repeated). I traveled to Europe quite a bit. Bought a house in Tampa where I currently live and work. I am now running a fund that was established by close acquintances and my goal is to grow and manage this fund successfully.

Evolution. This describes how my trading style has evolved over time, and how I have studied my trading history, techniques, risk tolerance, and every aspect of my trading career to continuously evolve and adapt to the ever-changing market conditions. I have been able to expand and diversify my trading to include Forex (mainly GBPUSD and EURUSD), futures (TF, GC, CL, YM and NQ), and going back to my roots - stocks.

I feel most comfortable trading stocks due to the fact they can be more predictable than futures and/or Forex. I find that my scalping techniques work more effectively with active stocks. Additionally, I feel a lot more comfortable holding stocks over a period of more than one day in the current environment (something I did not do during 2008-2009).

Furthermore, my trading analysis on Forex has been very rewarding and accurate on larger timeframes (1H and 4H charts). This obviously requires more risk, but provides better rewards overall. However, I still will scalp the GBP and EUR on occassion.

Of all the evolution and adaptations I have made over the year, my trading style and 'signals' have remained constant. I have however stopped trading the ES emini. I have found it to be too erratic (not to mention stressful) to trade successfully over a long period of time. And quite honestly, I am doing quite well concentrating my efforts on high probability/low risk trades in different markets.

I hope to post more setups and charts on my blog, and I certainly hope to post more of my trades on twitter. I encourage feedback and would welcome any comments on the site or my setups.

Stay tuned for charts and setups. We are currently overbought and hovering just below a significant resistance area. I bought some SPXU yesterday and was good for a quick scalp of 30c before the market moved higher again. Still holding a portion with a stop below yesterday's low.

Averaging down. To do it or not to do it...

I hope everyone is having a great weekend and Father's day.

I wanted to touch on the subject of averaging down when holding a position for a couple of reasons. A friend of mine, who I consider to be an experienced trader, did this recently. And, I have touched on this subject in previous posts, but feel it deserves a topic all by itself.

Averaging down - a double edged sword. You open a stock/position, the price goes against you, and you are left with a decision: Do you stop out, or increase your position size to reduce your breakeven point and get out/make profit sooner? We have all been there and done it at one time or another in trading.

And we have all heard the arguments before (for and against): Buy more! It's a great stock and it WILL come back - the market is in an upswing. Sell it! You NEVER average down.

I am not sure there is a definite, correct answer to this question. I think it's a 'It depends' anwser. Before you say that I am hedging here, let me explain and then give my own personal opinion.

I think it depends mostly on the type of trader/investor you are, and your portfolio. If you have deep pockets and can afford to not only average down, but expand your risk AND wait for the price to come back, then that's fine. If your position is a very small part of your portfolio, and averaging down does not put the position against your risk tolerance, then maybe.

But here are the real questions one should ask before averaging down:

• Why are you averaging down?
• Does averaging down expose the position to more risk than your plan allows?
• Is averaging down PART of your trading plan?
• Do you have an EXIT strategy should the position NOT come back? (i.e hard stop, etc.). I mean, you are not going to keep averaging down are you? (Note: if you answered yes, please close this page and erase all instances of my link from your browser).
• Most importantly, if you did NOT have a postion in this stock already, would you OPEN a postion now? Does this stock fall in the criteria of your plan if you wanted to open a new position? If you answered no, then I ask: Why are you buying (averaging down)?

I believe averaging down should only be done by experience traders who not only know what they are doing, but whose accounts are able to withstand the hit if it does not work out. And maybe, if you are investor with a very long timeframe and are willing to wait out the position.

In my opinion, traders should NOT average down. The minute you do, your focus now changes to 'Hope' that the position will come back so you can exit sooner. Hope is word that should be eliminated from a trader's vocabulary. There is a reason a position has moved away from you (usually, a pretty good one). If you like the stock that much, then wait for it to come back to your original sell point and THEN buy it. Or, even better, wait for another entry that falls within your plan. Take emotions and stress out of it (easier said than done, right?).

We've all been there before: you open a position, it moves away, stops you out, and then comes back. But this is the life of a trader. You live to fight another day. Think about all the times you got sopped out of a potentially disastrous situation.

I don't know about you, but capital preservation is much more important to me than making money. Why? Because I have a system that is reliable and will ALWAYS give me good entries to postions that make money AND fall within my trading style/plan. Losses are part of trading and unavoidable. It is much better to analyze WHY you got stopped out, and learn from a losing trade.

Above all else, and I cannot stress this strong enough, make sure you have a trading plan and are taking trades according to that plan. The minute you deviate, you'll get nailed.

Good luck with your trading.

In trading, does practice make perfect?

It's been a while since my last post, but I have been extremely busy, as you'll soon find out.

The short answer to the question is: I don't know, but I sure hope so. Maybe not perfect, but more consistent.

I read somewhere a while ago about a former Redskins defensive football player (the name escapes me), and his thoughts about the NFL. He talked about games and practice and so on. When he first started playing, he always wondered/complained about why they practiced plays over and over and over again. It wasn't until later in his career that he fully understood why. The obvious answer is to be disciplined and get the play/scheme right. Make sure you are in the right spot, covering the right person, making the right tackle, etc. But the more important reason, is that during game speed, not only will you know instinctively how to make the play, but you will know how to REACT should the play or conditions change. You can recognize when things are not going according to plan, and with minimum thinking, adjust on the fly to make the play.

I think trading is similar to a certain degree. During trading hours, there is no timeout, no replays. You can't stop the clock to think. You have to react. This is where discipline and practice come in. There are many ways to practice in trading. The best way, especially when trying a new system, is to trade live with real money. Small money, but real nonetheless. Why? The emotions are there. Paper trading during market hours is the next best way to practice.

In my case, since I use eSignal, there are a couple of other ways to practice. I can download tick data for any symbol, and run the data in playback mode. This gives me scenarios where the chart sets up just like real time and the indicators give me the signals as necessary. Even more importantly, I can place dummy trades just like real time, and determine/refine my money management skills. It is as good as paper trading, but can be done at any time, and you can speed up the playback mode.

Personally, I have a pretty reliable system for my day trading. However it is very price sensitive, and while it works great in trending markets, I am finding that during choppy days, I get many false signals. For this reason, I have been spending a LOT of time optimizing, backtesting and practicing the tweaks/refinements to my system to the point where I feel more confident in its application under any market circumstances. Everytime I make any adjustments, I run eSignal in playback mode and take trades based on the indicators to see how well they work.

The point I am trying to make is that whatever system you use, it is necessary to backtest to make sure it gives proper and acceptable returns. Additionally, it is also important to know/practice how the system acts in real time, and even more importantly, how YOU should react if the system does not go according to plan. Backtesting gives you numbers and percentages which is good. But you actually taking the trades based on your system - now that's the key.

I will have another post soon to discuss in more detail what some of these tweaks are, and how my trading has been affected.

Learing never stops as a trader. I have been day trading for about a year, and have spent countless hours thinking over, analyzing, optimizing, you-name-it-izing my trades, system, risk/reward, etc. I have spent almost every spare hour of my time doing this. And while I will never be able to make if perfect, I should be able to become a more 'consistent' trader. THAT is my ultimate goal.

Good luck with your trading.

Possible Double Top

It was a very interesting day today. What started out as another gap up and continuation certainly did not end that way. The buyers were very eager this morning as Geithner was answering questions about the economy to a congressional committee.

In what can only be described as 'panic buying', the indices marched straight up right from the open with very little breathing room. You either had to chase or be left behind. The ES emini futures topped out at around 923 - right at last week's highs and filled the gap from last Monday 5/11.

That's when the sellers stepped in. The selling was intense and accelerated in late afternoon. ES ended the day right at 900, while the Dow Jones retreated all the way from around 8600 to close at 8422. The daily chart of the SPY shows that we are in a very congested area, with a tightening triangle forming, along with a possible double top. The 'glass half full' argument would debate that we may be forming a Cup with handle that will be triggered with a push above today's highs on volume. There is a valid argument to be made for either case, but the fact remains that until this area gets resolved one way or another, it is going to be very choppy. The weekly chart is still overbought and the stochastics have crossed, but the sell signal will only be triggered if we take out last week's lows.

The next few days will be key again for the market. There are support and resistance levels galore, and one of these levels will have to be taken out. Although I am leaning for a correction, I am prepared for either scenario. Ags are looking mighty ripe for a correction, as are energy, solars and coals. Gold and oil look good for a continuation.

Stay alert and good luck with your trading. I'll see you on twitter.

Bear in bull's clothing, or more bear stew?

The pullback week that we have all be waiting and yearning for is finally here. After a historic monster of a rally, stocks took a much needed breather last week with the indices down between 3-5%. However, some sectors took bigger hits, e.g. XLF, IYR, XLE and XME were down between 6-11%. I think it is safe to assume that the 'character' of this rally will be tested in the coming week, if not the next few days. Is it a bear in bull's clothing, or is the bull setting up a trap for more bear stew?

This move sets up a much important test for the market. Many stocks are at 'logical' pullback buy points - whether you are looking at stochastics, CCI, MACD, etc. or simple pullback chart patterns. Additionally, many stocks are resting at the 20 or 50 MA on daily charts. Declining 200MA resistance still sits comfortably above the majority of stocks and the indices. Usually, the first test of this resistance fails, and the second test on strong volume is a good indication of a recovery in the chart pattern.

Although the daily charts do look very promising technically, the corresponding weekly charts are pointing to an even more significant pullback if the lows of last week are taken out convincingly. The SPY weekly is setup perfectly for a stochastic sell signal on the weekly chart and has historically been a very accurate indicator if/when triggered. Obviously, this does not mean the same thing will happen. It is very possible we may not even retest or breach the lows of last week. Also remember, that there are now 'trapped' longs who jumped in late on this rally and will be anxious to 'break even' the longer we do not get back up to the highs (more fuel to the selling fire).

Additionally, my TA system is showing a strengthening of the US Dollar vs. Euro and GBP, which could adversely affect commodities and oil - meaning a more severe pullback might be in store. Furthermore, MOO closed with a 'doji' on Friday with above average volume. Ags have been unstoppable the last few weeks and are due for a pullback, especially with the 200MA in close proximity as resistance.

In conclusion, I think it is safe to assume that this is becoming more and more a stock picker's market. Focus on the strong stocks in strong sectors for long positions (i.e. the leaders), and short the weak stocks in the weaker sectors. There is no shortage of watchlists for both longs and shorts in this market, so be prepared for both scenarios and look to book profits when you have them.

The burden of proof now lies squarely on the shoulders of the bulls. Is the worst over? Will more banks fail? Is unemployment going to hit 15%? I don't think ANYONE really knows the answers to all these questions. The market will let us know in due time. No need to guess or force our opinion on anyone, including the market. Prices are THE best leading indicator - follow the market for your cues, and stick to your trading plan.

I hope everyone had a great weekend and is ready to make some profits this week. Good luck and I'll see you on Twitter.

Assessing the damage

Well - it sure wasn't pretty! Actually, the adjective that comes to mind is: Ugly. That's right, it was downright ugly today. If one were to pick up a newspaper (like anyone ever does these days), or go to Yahoo and see that the indexes were down around 2-3% they'd probably think 'Ok, not too bad'.

But the real damage was 'under the hood'. Yikes. In fact that there was carnage out there. Steels down about 10%, solars -9%, energy -9%, real estate -8% - you get the picture, and don't even ask about casinos. The momentum stocks got crushed today with losses of 10% and more. Decliners outnumbered advancers by about 9 to 1. The bulls could not even muster the usual late day rally attempt.

When analyzing charts, especially for SPY (or ES), I like to look at multiple timeframes to get a feel for the short and long term trends. The weekly is setting up as a stochastic sell which has not triggered yet. A move below last weeks lows and I believe we are in for more correction. The hourly chart is looking precarious - trend lines that extend all the way back to Mar 10 have been broken for all majos indexes, and the 20MA is about to cross below the 50MA. This was attempted several times in the last several weeks, only to be reveresed rather quickly with a resumption of the rally.

It is obvious, and quite healthy, that a pullback was needed in this market. Many people (myself included) who don't like to chase have been calling for some consolidation, and an opportunity to get on-board. This is the bulls chance to show the rally is for real. The daily chart still looks intact and bullish - we are still above the 20 and 50 day MAs. There is some strong support in SPY around the 87 area - if that gets taken out easily, then the next area of support is around 83-84.

Fundamentally, it became rather obvious with today's retail numbers that the consumer is still ailing and the economy may not be rebounding as others would like to think. Unemployment is still rising, and the treasury bond yields are rising as well. The bulls have a lot to overcome here.

Regardless of what happens, there should be some fantastic opportunities to profit in this market - long or short. Remember to stick to your plan and take profits when you can.

Good luck with your trading.

Some support and resistance levels to watch for

I watched some absolutely phenomenal analysis this weekend by great traders like @tickerville and @HamzeiAnalytics. Traders I would not have known or met without Twitter.

In addition to the great analysis already done, I wanted to get some charts out on SPY, QQQQ and VIX to show where some of the support and resistance areas might be and perhaps watch for signs for reversal or continuation. The first thing to notice on SPY and QQQQ is the fibonacci retracement from the pivot high to the low. We are sitting right at the 38% retracement level. Does this mean it's time to short? Absolutely not. We just need to watch this level to give us some guideline on the next move. Also notice the proximity of the 200MA to this level in both ETFs.

The other level of support/resistance is called MOB (Make-or-break) which is an eSignal proprietery indicator. Notice historically how the price either bounces off this level, or continues in the same direction after going through. It is an important tool in my analysis as it acts as a 'magnet' for prices and in most cases the price will often test this level.

For SPY we are at that level (MOB and 38% Fib Retr), with possible continuation to the 99-100 level and then pretty strong resistance around 106-107. A slight correction would take the SPY to around 81-83 level, a more severe correction to around 75, and a really severe correction takes us back to the lows.

Similarly, QQQQ has tested the MOB on a couple of occassions, has gone through the existing MOB level, and next areas of resistance are around 36, and very strong resistance at 38. A slight correction will take the QQQQ back to around 31-32 level.

The VIX is currently sitting at an important MOB level and I am 'expecting' a bouce here in the coming week. The next areas of resistance are around 40, then around 50 and 56-57. The thicker the MOB on the chart, the more powerful that level of support/resistance is.

Please remember these are just points of reference and NOT meant to be hard targets. Historically, prices gravitate towards these points, but not always. A reversal at a point just means there is a good chance for a trend reversal. A continuation through the levels means just that - trend continuation.

One thing for sure though, I believe the market is setting up for a buy on pullback. Additionally, any shorting of stocks should happen on weak stocks in weak sectors. For now, I'd stay away from shorting the leaders, such as financials.

Just some additional things to think about on a lazy Sunday afternoon. :-)

Quicksand...

Happy mother's day and I hope everyone is having a great weekend.

I was reflecting on my one year anniversay of being a day trader, and I went over my records and journals to see what mistakes I have made and the glaring weaknesses in my trading. It is interesting to see the evolution of my trading during that time. I must admit, I have adapted and tried many different styles and strategies. Some were good, some were bad. Overall though, I feel I have settled pretty well on my strategies and style for day trading as a means of making a living. It is also interesting to see that most of my losses were mistakes made by ME, and I had no one to blame but myself.

In going over my journals, I noticed a few times where I made one common mistake. The last time this happened was in October last year where I lost 15 times more than what I had originally lost in that day. Becasuse I was trying to recover my initial profits and eventual slight losses. It was probably the wildest trading day of the year (maybe ever) where the VIX spiked to almost $90. Remember that day? I sure do. I'll never forget it. I was lucky enough to recover from that day - but it taught me several extremely valuable lessons. I always fear making this mistake and I believe I am overcoming that emotion.

If you've watched the movie The Replacements with Gene Hackman and Keanu Reeves, you'll know what Quicksand means in reference to football. The coach (Hackman) asks the team: what is your greatest fear? The QB (Reeves) replies: Quicksand. Things are going well for you, then you start making mistakes. All of a sudden it's a downward spiral and you cannot control the sinking - like you're in a quicksand. The Detroit Lions are very familiar with this concept - clutching defeat from the jaws of victory.

But seriously, I think the same concept applies to trading and has happened to me on a couple of occassions. You are making a profit. Then a couple of quick losing trades and you are now down. You want to 'make up' your losses and your emotions and fear rule over logic. You are now trading recklessly and pretty soon you are down a lot more than what you were trying to recover - Quicksand. Overtrading.

It took me some time, but I was able to overcome this by putting a limit on myself. If I make 3 losing trades in a row OR I lose 2% in one day - I am out for that day. I stop trading, regardless of how 'good' setups are. It is important to understand that there are opportunities to make money every day in the market. Wealth is accumulated over a period of time and many trades, not in ONE trade.

As you look for opportunities to go long or short in this market, make sure that you are following you trading plan and set rules for yourself on risk, profit, losses, etc. It's the only way to ensure consistency and survival in this business.

Good luck.

What's my stress?

So, finally, the stress test results are out. Surprised? Shocked? Stunned? No.

Do you feel it was a scam? The banks will fail? Or do you feel that we are out of the woods and 'green shoots' everywhere?

Ok, here is my opinion - I DON'T CARE! Sorry, don't mean to shout. But these are things that I have absolutely NO control over. And to me, it's all noise. So, why should I be worried about what the government thinks about the banks. Even if ALL banks failed the test - it has been demonstrated that money can and WILL be printed to 'let no bank fail'.

The only thing I concern myself with is PRICE ACTION. I react to the market. Let's face it, I am not one of those traders who 'positions' in front of news and anticipates reaction to news. A) It's not my style, B) I don't have deep pockets, and C) I don't have the analysis and experience necessary to do that. In any event, by the time you see it and position yourself, the BIG BOYS are already ahead of you.

So, what's my stress? Not seeing my price patterns for trading and not getting any buy/sell signals from my indicators. That's it. I am only worried about watching the action unfold and recognizing price patterns that fit my strategy and trading plan. Once I see it, I will trade it. My focus over that last 9 months has been and will continue to be, intra-day price action. I am not interested in holding anything overnight for now. I absolutely love this rally, and when I see good setups, I feel confident that I will start swing trading again. We need to let the dust settle and let the market prove to us that we are out of the woods, not hear it from some CNBC analyst.

The job numbers are out and futures have retraced a bit. I am still 'expecting' a minor correction - but who knows with this market, one day may be all we get for now.

Good luck in your trading and I'll see you on Twitter.

Will BAC be the catalyst for a correction?

A story is breaking this evening at the Wall St Journal regarding BAC needing an additional $34B in capital to survive. This news has caused the futures to dip quite a bit. So, I wanted to take this opportunity to post an update of my thoughts on the overbought indicators I am seeing on the SPY.

I read a post earlier by Keith Shepard (@keithshepard) where he talks about the NYSE Bullish Percent Index approaching overbought levels, and how it might be time to be defensive. On the SPY chart, I have included the traditional Stochastic and RSI indicators on a weekly chart. The stochastic is setting up as a high percentage low risk sell, but is yet to be triggered. 1 or 2 down weeks will trigger this signal and the market should go through some correction - how much is yet to be determined. My initial target would be around 80-81 for a minor correction, and around 60-63 for a more severe retracement. The RSI indicator is also overbought at these levels and one can see the historical response to these levels on the chart. Declining volume over the last few weeks is also of some concern.

The question we have to ask is: will BAC or stress tests results or any bad news for that matter, produce enough of a catalyst to induce a round of profit taking. If so, then the next dilemma becomes do we buy the pullback or watch this market sink to new lows? One step at a time. Let's get a pullback first and then we can react to the market as it unfolds.

I personally think a pullback is going to provide some fantastic opportunities for longs in leading sectors.

In the words of the always real @tickerville: Let's keep it real.

Good luck.

False breakouts? Or something else

I hope everyone had a great weekend and is ready to get back to work next week.

This market just refuses to give anything back. Every little intra-day dip is being bought without any fear. A little too complacent in my opinion. Volume has just been not very impressive the last few weeks. However, volume or not, the points are racking up on the SPX and DOW and we continue to march upwards. There are still heavy resistance levels overhead and this week's news should provide some direction. April unemployment data is coming out, and it will have to be absolutely disastrous numbers to even make a dent in this market. The bigger news is the stress test results. The fact that the release of the results was postponed on Monday is not a very good sign - but that's just my opinion.

Looking through charts over the weekend, I could not help but notice a divergence in chart patterns. No longer do all charts look the same as has been the case for the last, oh I don't know eight/nine months. Many stocks are breaking out either from a cup and handle, or forming the right side of a cup. Last Friday, many energy, commodities, ags and steel names ripped higher on strong volume. I'll definitely be keeping an eye on these sectors for longs the coming weeks. The only problem I have with breakouts at this stage of this rally, is that we have come too far too fast and personally, I will not be chasing this strength. Mistake? Maybe, but I'd rather miss out here and let these stocks consolidate until I find my setups.

On the other end of the spectrum, bios are looking very precarious and teetering on the edge of collapse. Almost every bio stock retreated noticeably on Friday on heavy volume setting that sector up for continued weakness. Many housing, financial and real estate stocks are setting up for short opportunities this week as well. I believe some of the regional banks may be in trouble, and all you have to do is look at some charts of the weaker banks to see how they are setting up for more downside, e.g. ZION, RF, STI. Watch this sector very closely for short opportunities.

It is clear though that the leaders are emerging and setting up for continued strength as/if we move out of this bear market. At the same time, there will be lots of weak companies that will setup very nicely for short opportunities.

Stay vigilant and take profits while you can. This is one tough market to figure out. Good luck next week.

Fed - Running out of Ammo?

It was another very interesting FOMC day today. Futures were up on the GDP numbers - the markets opened up big and never looked back. Of course, like most people, I was looking to short the opening gap, but really did not find any opportunity. I tried once and quickly gave up as the buyers were out in full force this morning. So, instead of buying, I stepped aside. We later chopped around for a while until the Fed decision came out - then things got interesting.

There was really nothing new in the FOMC statement. The rate (target) remained the same, they are buying more (lot more) distressed assets, and a comment was made regarding the 'softening of the contraction' - whatever that means. Whatever. There was a period of indecisiveness after the release, and eventually a new wave of buying drove the indexes to the January highs. This prompted some profit taking and then a selloff during the last hour of trading, but not enough to prevent some solid gains and breakouts today.

My feeling is that the FOMC really has nothing else they can do at this point to stimulate the market, and are running out of bullets. They certainly are not going to raise interest rates, and are already pouring trillions into the market and the financial institutions. But that's just my observation.

The markets are at an interesting point here. The weekly chart of the SPY is setting up as a classic stochastic sell, and there are some stiff overhead resistance levels coming up - 20MA on Weekly for SPY and 200MA Daily for QQQQ. So, it would appear a logical place for a pullback (that's longer than 2 days). But this market has been anything but logical these days.

It'll be interesting to see how the pullback (once it gets here) is handled by the bulls. I am expecting a pullback to support and then an advance to retest the current resistance levels. And I am beginning to view this market as a 'Stock Pickers' market. You can begin to see the leaders emerge and breakout, and the pretenders languish and churn sideways and even go lower.

We'll see how things develops, and like I always say, the market leads and we dance.

Good luck with your trading.

ST - My (new) eyes to the market

I was actually hesitant to write this post for fear of being labeled a StockTwits Slappie now. I was asked recently 'I thought you quit ST' - I'll answer that question more specifically a bit later.

ST has quickly become an integral part of my trading routine. Whether it is during the day, at night, or over a lazy Sunday afternoon. I would argue that ST afterhours is absolutely jam-packed with information that can help you prepare for the next trading day/week. From tickerville's insightful videos, to daytrend's stocks that are trending up/down, and chartsandcoffee's excellent market commentary. So, I ask, what kind of an idiot would give up that kind of information?

During the trading day, ST is part of my arsenal for reading and 'feeling' the market - my new 'eyes' to the market. Just by looking at what others are discussing, trading, and 'feeling' helps me significantly assess the overall market. Mind you it does NOT SHAPE my assessment, it HELPS me in my assessment. There's a big difference, because I still rely on my TA, my interpretation of news and market internals to make my assessments and trading decisions.

When I first started using ST, it was actually a little difficult to use. I could not monitor EVERY single tweet that came in, while effectively keeping my eyes on the market for trades. Eventually, when I narrowed down the people I wanted to follow, I just concentrated on their tweets for the most part. During the lull periods, I go back and look for other tweets and try to discover some new 'gems' to follow. And make no mistake, there are some real gems out there - both discovered and undiscovered.

ST reinforced a couple of things about myself. Not only did my trading improve, but my discipline as well. Mostly, I find that my comments and tweets are really things that I am saying to myself, but also sharing it with literally thousands of people. Additionally, there is acually a sense of responsibility with making calls to buy and/or sell on Twitter. Especially when you have many people following and perhaps, just perhaps one took your call followed you on the trade. Tha't why I would also recommend my earlier post about how to take trades based on other followers.

The bottom line is that there are thousands of people on Twitter, with blogs, information, analysis, commentary, etc. that are MUCH more experienced and qualified than myself to discuss topics and issues related to the market and make stock picks. It will takes years for me to even be in the same league as some of these traders. So, I will continue to share my thoughts to whoever would like to listen, but more importantly, I will continue to learn and absorb what these traders are telling me.

Now to answer that question from earlier, what can I say? To quote Daffy Duck: I may be a little duck, but I am a greeeeedy little duck. In my case, I may be a hot-head, but I am a greeeedy (and occassionally nice) hot-head :-) I admit it, ST has made me a better trader. In the end that's what it's all about, isnt' it?

Good luck with your trading and I hope to see you on Twitter.

So, what's your bread and butter.

If you are a sports fan, you probably know how some pitchers have their 'pitch' - a slider, fast ball, whatever. Something they know they are extremely good at, and they can always come back to it and get batters out on a regular basis. Same concept in football - a team has a few 'signature' plays (except for the Detroit Lions of course) that they can use during a game, like a screen, a sweep, etc. It's their 'bread and butter'.

Trading is no different. Every trader should have a few 'signature' trades (at least one) that they can use at least once a day (for day traders). These can be something as sophisticated as MA Xovers, RSI/Stoch signals, or as simple as support/resistance plays. You know you can always count on making a living with these trades. You've studied, analyzed, backtested, tweaked, re-analyzed them until they gave you an excellent winning percentage. You use these on a regular basis and feel extremely confident taking these trades. These are YOUR bread and butter.

Jason Raznick was mentioning on StockTwits earlier today about how he learned over this last week to take fewer trades and only trade the ones that he had 'superior confidence' in. In other words, his bread and butter. Upsidetrader has his 5/20 trade, which I am sure is one of many - although I do not know what that particular trade is. So does alphatrends, Fari Hamzei, and many other great traders on StockTwits. The point is: find YOUR 'bread and butter'. Become REALLY good at it and use it over and over. You will notice something very interesting as well - you will start to hone in on the 'intuition' part of trading and find yourself anticipating signals and trades. This comes with practice, repetition, constant learning, hard work, and years of experience.

Today I took some nice gains from my 'bread and butter' basket. I was able to go long SDS several times today for 50c and $1 scalps. There were quite a few earnings releases after hours, including MSFT, AMZN, NFLX, SPWRA among others. Tomorrow should shape up to be another very interesting day.

Good luck with your trading.