4/24/2014

GOL : Breakout near new high

Slowly new leadership is emerging in the market. Stocks that held up well during the correction are now beginning to breakout.

GOL is an example of that today. GOL is brazilian Airline . After a first up leg in mid march it consolidated near high and is breaking out today. If it follows through 7 is my target on this. Stock showed up in anticipation scan couple of days ago and had a breakout today on high volume.


In it with close stop . More setups like this have started to show up in recent days.

Anticipation Setups I am currently monitoring.

Breakout Anticipation setups

Stocks having orderly pullbacks or sideways action during the correction . These stocks have established momentum and can breakout to upside in next few days.
http://www.finviz.com/chart.ashx?t=ISR&ty=c&ta=0&p=d&s=lhttp://www.finviz.com/chart.ashx?t=OFIX&ty=c&ta=0&p=d&s=lhttp://www.finviz.com/chart.ashx?t=YRCW&ty=c&ta=0&p=d&s=l


http://www.finviz.com/chart.ashx?t=FRX&ty=c&ta=0&p=d&s=lhttp://www.finviz.com/chart.ashx?t=TQNT&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=SEM&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=EIX&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=BBD&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=APC&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=BMO&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=PQ&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=CBD&ty=c&ta=0&p=d&s=l
http://www.finviz.com/chart.ashx?t=TTM&ty=c&ta=0&p=d&s=l
As you can see slowly more and more stocks are setting up for next up leg. If overall market gains traction these stocks might lead the action.

At this stage the action is dominated by oversold bounces. That trade is now almost over as most things that had to bounce have bounced back. Some of those bounces are forming good short setups.

4/22/2014

It can bounce but can it rally big

Indexes are masking what is happening below the surface. They are approaching new high but breadth does not support the new high. If you look at the Market Monitor Breadth figures, you will see that they are in negative territory. The damage done by selling is not being reversed. Such divergence often leads to lower prices.

If you look at most sectors, they are in confirmed downtrend and the bounces have not reversed those downtrends yet. Technology, financials, retail, biotech, software are all in correction mode and the weak bounces on them so far do not show bottoming action.

The defensive sectors and energy are best performers currently. I will look for setups on them for swing trading.


4/21/2014

The bounce may not stick



After many months with no 8% plus correction , we finally had a multi week 8% correction in Nasdaq and small caps.

Individual momentum leaders have taken bigger hits. As you can see at one stage last week 215 stocks were down 25% in a month.

In last couple of days the market has attempted to bounce back on low breadth. That might be sign of in short run selling is over and market might attempt to form a range. 

Because breadth was low the bounce may not stick.

4/09/2014

Small profit more frequent trades or big profit less frequent trades

3 day swing trade in CF

One of the constant question faced by new traders. They constantly shift from one end to another. Last night I got two emails and that had me thinking about this.

One person wants to only swing trade few triple etf while the other wants to only focus in finding stock likely to double. Focusing on less number of things will make higher returns or improve focus is the basic assumption.

Having thought about this issue a lot and researched it a lot in last decades , my view is the more opportunities a trading method produces better it is. Given a choice a method that produces 1000 trades in a year is better than a method that produces only 10 trades in a year.

A swing trading method or day trading method that produces frequent trades has big advantage over methods that trade less frequently even though the profit per trade is small. For example in the above CF trade I risked 254 dollar on a trade in a 110000 account to make 672 dollars in 2 days. In a year I am happy to find 500 plus trades like these and risk small amount. With commission cost being so low, it is better to trade frequently. For example in above CF trade my commission was 4 dollars. That is insignificant cost. 

A trader who focuses only on finding big opportunity has to bet significantly higher per trade to ensure higher returns. That significantly increases risk.

While a swing method that produces say 10 trades per day with lower per trade profit is significantly better as long as it has net profitability over large number of trades. Currently 53% of my trades work and give me 2.05/1 risk/reward. Then it becomes a task of finding more trades. Higher the number of opportunities, better it is. More trades you take with say 53% expectations level better it is as you can bet just .25% and still make good returns by increasing number of trades.

While everyday I look for a big opportunity trade like FB which made over 70% return on one trade last year , I am more focused on finding the small opportunities. The big trade is a bonus if it comes along, I will definitely take it.But as these trades require big risk if they do not work out , finding next opportunity involves long wait periods. 

Grinding out profit using swing trading is less risky due to small per trade risk as long as you have profitable method and it produces large number of trades. that allows you to increase your account in small but frequent increments and is less stressful. 

For a new trader who is just starting out this is even more important . Frequent trading with low risk allows you to build your skill faster than a less frequent trade method. It is also the reason most of the wall street and quant traders use high frequency trading methods with low per profit trade. With commission cost being so low, it is better to trade frequently.