Architrader Blog Central

Climactic Decline Buy in ESRX

My plans for a four day break from the markets had officially begun yesterday. With Memorial Day on Monday and an early close on Fri, I wasn’t expecting much volume/volatility on Fri. However, as traders we really never know what can or will happen from one day to the next. The market can be quiet, non-directional or erratic, but all it takes is one stock to be in-play to make your day.

This morning I flipped on CNBC Squawk as I do every morning to catch up on some news and I noticed BRCM had some interest – Buying. So I immediately fired up my computer and opened up my platform so I can see where the gap was in relation to the charts. And sure enough, the Gap was bullish so I instantly changed my plans for a four day weekend . I then proceeded to watch some other stocks in my watch list and found ESRX as a bullish intra-day gap. However, ESRX needed further confirmation before any involvement on my part would take place. I needed to have a Bullish 5-min opening bar to close above 60.75 (resistance) before I got involved. Well, as you can gather from the chart below that did not happen. Instead, we put in a hard red bar that produced nothing but selling. So much that it sent ESRX into a climactic-type decline on the 5-min chart. I began to watch ESRX closely for that possibility as the drop became more and more exaggerated on the 1-min chart (see below).

As you will see in my trade manager below, at the time of this trade developing I was long some SNDK from 45.80. But my attention quickly shifted towards ESRX as the reward / risk was greater.

As the last red bar on the chart below increased in size relative to all the prior bars I became interested in playing ESRX as a quasi CDB. I bid for one lot once the Green bar reversals (GBR) high was taken out and gave myself a little bit of room below the low of the day (GBR). As ESRX based around the lows, I began to join the Bids with some orders to buy more. My goal was to build a nice size position with my average cost as close to the low .80’s as possible. Once the Bottoming tail formed that became my final stop if the trade went sour. At this point I was risking .10 cents on the play.

As ESRX approached the whole number and prior high of the base, I offered out a quarter of my position at the whole#. I then sold half at 59.14 at the d20 and trailed out of the balance at 59.05. The end result was 3:1, which was good enough for me.

My ultimate goal for this trade was the 200 ma and PDC on the 1-min, but I had to make adjustments while in the trade based on various factors, one of which was time!

The rest of my trades pretty much washed each other out. The SNDK trade was good for 1.7 R’s. I took a couple of trades in X which resulted in losses totaling -1.8 R’s and BRCM was a small gainer of .20 R’s. The BRCM trade was pretty frustrating. It was the reason I decided to trade today and performed well below my expectations. There were plenty of times throughout the process that BRCM was in profitable territory and looked like it was ready to make a move, but could not get going. Fortunately, I did not get too big in the trade since I never really had the conviction I needed to swell my position.

I hope you enjoy your long weekend!

David

Trading Journal for Fri April 15

Today I am going to talk about two of the trades I took Friday morning. I think these are two perfect examples to discuss because they are both different strategies – One of which was a higher odds play that would typically offer the greatest reward. However, as you will soon find out it was my second Tier play that resulted in the better play. In view of that, if you want to be successful in this business you have to be willing to take every setup that meets your plan, because you will never really know which trade is going to offer you the greatest bang for your buck! If you have a Money management method that focuses on reducing your risk while letting your winners run to their corresponding targets, there is no reason why you shouldn’t take every trade that fits your plan, if all things are equal.

Below these chart examples I have posted my trade manager so you can look at my entire trade history for Fri. You will notice two trades that resulted in Net losses, that’s because neither one of them hit their first target. The trades that resulted in less than .10 cent gains are the trades that hit their first objective, but trailed out with a break even stop. And lastly, the trades that were greater than .10 cent wins are the trades that worked to obtain maximum results.

For the purpose of keeping everything equal, I averaged out my cost and exit for every individual trade I took. However, you will notice in the CREE example I took my last sale .79 cents away from my average cost. But, because I normally only carry 1/3 of my position to my third target, it doesn’t make a significant impact on my average exit.

Overall, it was a nice day of trading. My Average Profit per share was .12 cent round turn, which is not too shabby in my book. It was actually quite a bit higher than that, but the trades I took during the “Doldrums” ate into this ratio.

CREE was a nothing Gap, but got into my radar as the first 5-min bar settled with a Potent +WRB. The Moving Averages were trending nicely on the 1 and 5, so it was just a matter of waiting for the 1-min to trigger an entry event above the opening range.

AMGN was a Bullish Gap. The smaller time frames also looked stellar, so this was one stock I had to be get involved with. The 1-min triggered above the opening range and that was all I needed to get long.

As you can see with both these trades, there were additional “adds” that improved my avg cost, while never taking much Heat! I love it when that happens

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Trading Journal for Jan 19, 2011

Today was a great day for me on the Discipline side of my trading. I hit my personal daily stop, which I enforced. It is my second daily stop-out in eight trading sessions, and I can’t begin to express how shocked I am with the ease I was able to stop myself out. Not only did I stop myself out, but I actually felt relieved. I felt relieved because in the past, these were the type of trading conditions I would have sabotaged myself. These were the type of days I would give back days, if not weeks of gains on one single disastrous trade or day. They normally came after I had a serious of consecutive Up-days, as overconfidence would override my logic for killing the trade or better yet – Stopping myself out.

I can’t begin to convey the amount of empowerment I feel over my emotions as I write this journal. Specifically over my trading demons that have controlled me for so many years. My gigantic ego, stubbornness, and lack of self control have gotten the best of me for so long. BUT NO MORE! This all changed for me when I had that conversation with myself and I gave myself that ultimatum. I basically told myself…You are only going to focus on managing risk, not the outcome. The outcome will always be the unknown and the only thing you can’t control. And, the RISK is one of the only things you can control. You CAN decide how much money you want to risk on an idea…You CAN decide how much of your account you want to risk per day. Your fate as a trader falls in your ability to follow these two things. That’s it! If you don’t have the Discipline and can’t follow these two rules – YOU ARE DONE!!! Close your accounts and stop trading. You see, you can have the best technical trading skills and have an accurate read on the markets, but if you can’t manage (control) your risk – Your superior technical skills will lead you down the path of the 90% of traders who fail!

So, I made it a priority to focus on one trade at a time and making sure I didn’t exceed my $ risk amount. Any trade that got close to my R-amount, I immediately closed. I didn’t even allow my “trading demon” to justify holding a little longer. It’s almost like I was 10 steps ahead of him. I just reacted in alignment with my goal/focus of not letting any trades exceed my stop.

My other and more important goal/focus, which has been the culprit for countless days of pain, frustration and a halt in progression, was managing my daily stop. This has been the greatest challenge for me as I’ve never been able to stop myself out. I either hit my max loss or I was profitable. My plan was to start small by re-enforcing small positive habits to help me combat the “big one”, when it would inevitably come. I knew if I consistently focused on making sure I didn’t allow any trades exceed my R-amount, I was subconsciously working on my Discipline! However, it’s important to understand that habits are created through repetition. I’ve taken many losses along the way that has given me the confidence to stop out of any trade that goes against me, regardless of what the external environment (market conditions) may be. I now just react; I don’t even give myself time to think!

By no means am I saying or do I intend to imply trading will be a breeze for me from this point forward. I don’t believe anyone can ever master the markets, they can only master themselves. But I do believe I am overcoming a major obstacle that stood as the primary barrier to take my trading to the next level.

If I can offer one bit of advice – Find what’s holding you back. If its order execution, focus only on order execution one trade at a time, one day at a time. Don’t look too far into the future. If it’s risk management – Be specific as to what part of risk management. And, once you have identified your trading challenge, FOCUS like you’ve never focused before to fix the problem!

Trade well

~David Guerrero

Trading Journal for Fri Nov 12

Today was my first day trading with my new firm and I wish I could say my day was positive, but it wasn’t. Maybe it was the lack of sleep, or extra glasses of wine, or unnecessary pressure I put on myself to perform well today that made me not trade my best – I don’t know. The truth to the matter is I traded poorly. I made some bad choices, one of which came on my first trade. I had a pretty good list of shorts and a couple of longs to watch at the open. I actually set an alert on CAT and typed in the memo box – “Watch for buying at 81.50”. This was an inflection level. If CAT cracked the 81.50 handle and the offer held, I was going to get short, If not I was going to get long 81.50. CAT broke 81.50 and I immediately got short one lot. My first mistake was not watching the Tape long enough to identify a true seller. Once the Bid held and buyers kept stepping up there Bid, I should have killed the trade. Instead, I added to this position as it went completely against my thesis. By the time I eventually killed this trade I was down close to half my daily stop. That’s one way to start your day off on a bright note. New firm, semi hung over and BAM nice loss to start the day! urghh!!!

After I closed this trade I took a 10 min break to re-group. I knew I needed to stay focused on my process and move on with my day. I also knew I better have the Discipline to kill any losers much quicker than my last trade. So I switched my attention to my gold stocks, which were part of my Short watch list. They were one of the weakest groups, so I began a short on GG close to the 47.00 level. This trade really challenged my patience. I wasn’t 100% convinced this trade was going to work for one reason. There was evident buying on the Tape which kept holding the price at every .10 cent drop. So, I was reluctant to add aggressively to my short. The chart however, was confirming weakness. But if GLD bounced off the lows, GG was probably going to explode to the upside, so I didn’t want to get caught on the wrong side again. Fortunately that never happened and the market bled lower. I was able to recoup 75% of what I lost on the silly trade in CAT and felt good about that.

The only thing I was not happy about was not holding most of my position to my ultimate target and holding more shares. But, in the heat of battle it’s hard to make that judgment.

It was really hard to find anything else to play after this trade. The markets were printing new lows and GLD along with gold stocks were beginning to bounce. So, I either needed to wait for a logical area to get short again or look for some counter trend plays. I noticed RIMM was very strong off the open, but quite a bit off its highs. So I kept a close eye on RIMM and noticed quite a bit of selling come into the stock. As the chart began to breakdown I began a small short position. I wasn’t 100% committed because RIMM was already down over a point and half and psychologically it’s hard for me to want to short after a move like that. But the selling was very evident so I was trading what I saw on the tape. RIMM continued its drop and I covered this trade for a nice profit.

In the end I was able to re-coup most of my loss to finish the day. But my performance was unacceptable. I know better than to let a trade go this much against me. Especially when it was so obvious I was wrong. Who knows, I might have had more conviction in the following trades had I not been in the whole.

My Lesson(s):

–Never begin a short at the bottom of a Stage 3 base on the hourly or 30 min timeframe.
–Add aggressively to a position only when the Tape and charts are in alignment with one another.
–If you are playing a significant Inflection level and the trade immediately goes against you – Flip and go the other way as close to the level as possible.
–Do not trade inflection plays when you are either hung over or lacking sleep. These can be very fast and volatile trades that require very quick thinking and agility. My brain does not process this type of information as quickly when I am feeling sluggish.

Chart will follow this evening…

David Guerrero

Trading Journal for: 08/03

In yesterday’s journal I mentioned that I only need “One good trade” to make my day. Part of my thought process behind this concept is my “part time” trading status. In addition to trading part time, my trading window is also very short term in nature – Typically 30 to 45 minutes is all I have. Therefore, my rules and trading plan are tailored around my schedule and personality.

This morning I wasn’t even sure I was going to be able to place some trades. I was having an overwhelming amount computer issues that were frustrating the crap out of me. But, then again my desktop is going on 10 years old. I know it’s time to upgrade and I will be doing so very soon. Nonetheless, I was having a lot of issues. I really didn’t have a bias for the overall market, but was looking at NOV and HAL for potential shorts. The drop eventually came in NOV, but was late to catch it when it eventually dropped. As the market began to roll over, I was glancing at a 5-min chart of JPM. It was very close to an “A-set up”. The only argument against this trade was the bottoming tail that formed on the 2^nd 5-min bar. Nonetheless, the play was valid so I shorted a “feeler lot” below the low of the prior bars low at 41.58 with my stop above the high of the day at 41.65. The trade fluctuated between my entry price and 41.52-ish, providing no heat. I short 5 lots at 41.57 as my conviction grew stronger in the trade.

My scalp target (T1) was the low of the day (41.40-ish) at which point I covered half my position and adjusted my stop on the back half to B/E. My second target was 41.25-ish, which was an hourly Pivot from 5 days ago. I chose this as a target because this level was a prior area of Supply (resistance) and a logical area to expect a bounce. By the same token I was also interested in adding half of the shares I covered if; A) My B/E stop didn’t trigger and B) A sell Set-up triggered. That opportunity came and I shorted half the shares at 41.37. This “ADD” lowered my avg cost to 41.50 and I adjusted my stop above the 2 min Pivot at 41.46 on the entire position.

So, I was basically in an entirely new trade and looking at 41.25-ish to cover half. I ended up covering at 41.28 and moved my stop to B/E. My second target was the “whole number”. I ended up covering 1/4 of my position at 41.21 and put my orders out in front of the whole number at 41.02 and 03 on the last 1/4. When I didn’t get the fill, I monitored the bounce and covered at 41.15 and 41.17 based on the 2 min BRB trail…(See 2 min chart above)

This “single trade” put me up nicely on the day with an average gain of .22 cents with nice size!

Good Trading

~David_G

Trading Journal for: Aug 2

This morning I came in with somewhat of a mixed view in the markets as the Q’s and SPY were gapping into Daily resistance. However, I was bullish on the Oil stocks as the OIH was gapping above a multi-month base. So, I had my usual stocks I trade on my watch list (RIMM, X and SNDK). In addition, I was looking at HAL and NOV as potential longs.

As the market opened I began to notice quite a bit of weakness in RIMM. Particularly the fact that it could not remain above 57.00 — This Minor resistance level was clearly showing the sellers were going to hold the offer and take it down. So, I had two ideas on RIMM. Plan A was to short some shares when an opportunity presented itself with a downside target to the “whole number” 56.00, or plan B, start a long position at the 56.00…I did both.

My initial trade in RIMM was a short at 56.45. The reason was the 1-min sell that developed (see inset above). Again, my target on the trade was 56.00. So, I took some scalp profits (1/2 position) at 56.29 as my plan dictates and my stop went to B/E on the rest of the position. I now had some profits locked in to satisfy the “Scalper in me”, a stop at B/E giving me the piece of mind and satisfying my competitive personality (I hate to lose), and finally a larger target on the rest of my position to satisfy my PnL and oblige by what my trading plan tells me to do. As RIMM proceeded to drop I was hoping another sell set-up would develop so I can add to my short, but that didn’t happen. So, as the drop came I covered 1/4 at 56.02 (my ultimate target). The last 1/4 was trailed out on a 1-min Bar-by-Bar (see inset above).

So I was flat RIMM now and interested in executing Plan A. But, I was hoping for a higher low or a re-test of 56.00 to begin accumulating some shares. As you can see from the 5-min chart below we actually formed a nice bottoming tail and looked like were going to trigger a Counter trend Buy Set-up. So, I put out a ‘Feeler” lot at 56.23 and got filled. Once the Buy Set-up triggered I took the offer for multiple lots. My target on the trade was the declining 8 ma where I took half my profits in incremental lots.

 On this trade I had to adjust my expectations because of the Counter trend nature of the 5-min chart. Ultimately, 57.00-ish was my target, but trailed out in the .80’s. The reason I sold the entire position was my observation of the Tape. As RIMM approached 57.00 the bids kept getting wacked and weren’t able to hold. So, I put a mental stop below .90.

SNDK

When I covered my first lot in RIMM, I bought a “Feeler lot” in SNDK at 44.38 when the Buy Set-up triggered. However, the trigger price was at 44.32, so I obviously got a bad fill. I also noticed I wasn’t getting the follow through I would have liked to see. In hindsight, maybe I should have been a little bit more patient, but I didn’t like the fill I got and the price action at the time, so I killed the trade for a penny profit.

NOV

As I said earlier the OIH was probably the most bullish sector on my watch list. However, I was willing to take a stab at a short in NOV as price was extended from the 20 ma on the 5-min chart (not shown). It was just a “Feeler lot” at 40.48 with the intention on adding more if the 5-min sell triggered. My stop was just above the highs of the day, which was 40.53. As NOV broke to new highs I covered my position and again got a lousy fill at 40.60. However, I was now following through with my original conviction, which was buying NOV. I got long at .60 and kept my stop tight on the trade. Again, I was not getting the type of price action I would have like to have seen in NOV. I took a scalp profit for half my position at 40.67 for a .07 cent gain and raised my stop to B/E on the back half. I hit out of my position when the bid went to .63 since my experience with bad fills was a recurring challenge today.

So in hindsight, did I lose out on some hefty gains? Yes. But, I need to stay focused on following my trading plan and my gut. I also don’t need to get every single move in the stocks I trade. Just “Once good trade” is enough for me, and if I can have one of these per day, I will be a happy camper. The truth to the matter is that the RIMM trade alone made my day. My Average profit for the day was .22 cents, which is a pretty good day by most standards.

Good trading

~David_G

Trading Journal for: July 30

It was a great way to end the month and I am looking forward to building on some of the adjustments I’ve made to my trading plan in the time to come…

I came into the market with a short bias based off the nature of the –Gap. On my radar was QCOM for a potential short which was based off the Gap down on the daily chart. So my plan was to short QCOM on the first sign of weakness, which for this play was based off the 1-min chart (see chart below). I shorted 3 lots at .28 with a stop at .45 to allow for some slippage. My overall target was the whole number at 38.00, but had plans to scale out with some shares along the way. As you can see from my trade manager below, I scaled out of the trade at .18, .13 and .11. To be quite honest with you, I took profits prematurely on the last two lots. Partly, because I had 1 lot sitting at the Bid at .09, which did not get filled and decided to take the offer and cover both lots.

My next trade was on the Q’s. This was initially a long at .25 with a stop at .16. The thought process behind this trade was from the viewpoint of potentially catching the bottom. However, if we rolled over, my expectation was a continuation of the downtrend. So, I flipped out of my long and got short simultaneously once my mental stop triggered and got filled at .14. Then we got the POP and covered my position at .22.

As I was short the Q’s I was long RIMM. I was holding 3 lots at 54.67, so I was somewhat hedged being long RIMM and short the Q’s. When RIMM showed Relative Strength against the market, this was one check in the favor of RIMM for my long. When the POP in the market came I bought 3 more lots at 54.72, which put my average cost at 54.69. My first target was the whole number (55.00) at which point I would have sold half my position. I ended up taking profits at 55.06 for half. I was now in a position of strength! I knew I would not lose money and I was playing with the markets money. So with half my position left I trailed out of 1/4 at 55.29 and my last 1/4 at 55.75, my ultimate target!

At this point I decided to wrap it up and close up shop as I had well exceeded my expectations for the day.

Hope you all have a great weekend and a prosperous week ahead!

~David_G