Markets Very Oversold: SPY is a short term Buy

My favorite short term over bought/over sold indicator is the 2 period RSI.  There have been papers, blog posts, books, etc. on the effectiveness of this indicator.  If you're not familiar with it, I would encourage you to google it and read up on the 2 period RSI.  Larry Connors has some great research on it.

As you can see from the chart below, the SPY etf is very oversold.  I'll be buying a little today and a little more tomorrow if we close down again.

Happy trading.

TLT

Book Profits in Gold...ehh, not so fast!

A couple of weeks ago, I pointed out that gold was beginning to look interesting in this post. I think it's safe to say that gold got interesting, as it has continued to go up and make all time highs. So far, so good...this is what it's all about...you notice something interesting, buy it and it goes up. Now for what I consider the tricky part of a good trade...when to sell.

I must admit, my natural instincts of seeing a profitable trade in an instrument that's making all time highs started telling me to book profits. I even considered it on Friday. Then something interesting happend. I was watching CNBC and I kept hearing the talking heads speak about traders booking profits in gold or selling gold at these new levels. That's when my thinking changed back to how it should be. I realized that a lot of traders were feeling like me...looking at these high prices...seeing how far above the moving averages it's trading...thinking about the paper profits. This is when it pays to fade your feelings. Sure, I might see some paper profits go up in smoke, but I'm trading for big profits, not smaller profits and that's just part of the game. When "everyone" is selling out of an instrument that's making all time highs, it usually pays to hold on just a little bit longer because what nobody thought would or could happen sometimes does happen.

Will gold continue to go up? I don't know, but I'm willing to let a position ride on the premise that it could and that there has not been any good signal for me to sell gold. Sounds simple enough, yet many (most) traders don't step away from a trade and think about these things. You've got to ask yourself, "Why do I want to sell right now?" Then write that answer in your trading journal. If you do that over and over, and you're like me, you'll start to see a pattern of selling winners too early. That goes against Livermore's advice of , "Cut losses and let profits run."

Ok, back to gold..here's an updated weekly chart that I'm looking at:The most important aspect of this chart, aside from the bullish trend in price, is the rising BB Width that's still at relatively low levels. I said in my earlier post on gold that I was looking for the BB Width to reach between 20 and 25...it's at 15 right now. It may not rise to the 20-25 range, but it's likely that it will. This would mean that volatility is still expanding (Bollinger Bands are increasing in width) which I know is a sign of a trend continuing to gain strength. So for now, my analysis says HOLD.

Hope everyone's having a great weekend.

TLT

Sandisk: A Lesson On Holding Good Trades Longer

Early in the program at our trading firm, the head trader said that after a month or two, our biggest problem would be holding good trades longer. I don't know about it being our biggest problem, but SNDK was a great example of leaving profits on the table today. I traded in and out of it a few times and failed to pull the trigger a few times as well. Despite making money in this stock today, I would have made much more just holding any of my long entries (both the ones I took and failed to take) until the close. Given the recent choppiness of the markets, it was nice to see some follow through in various tech names, such as: sndk, ctsh, wdc, and stx. Easy money is always welcome and getting frustrated about booking profits too soon is just a sign of easy money..and for that I am grateful. Remember, it's always easy to look back on a chart and say, "I should have done so and so..", but having a plan, sticking to it and making money is great. At this point, I will closely monitor whether I'm consistently taking profits too early and if that's the case, I'll adjust my plan accordingly.

Hope everyone's having a great week.

TLT

A Quick Day Trade: MASI

Here's a quick day trade that I put on this morning. I went long MASI about 10 minutes after the market open. This turned out to be a decent little trade, although I left some on the table...my initial profit target was $29 but I booked profits at $28.20. I need to work on letting profits run a little more. Overall, I'll give myself a B for this trade. Here's the chart with my entry and exit:Like I said yesterday, I'm only taking day trades right now until the market gives a better indication of which way is the path of least resistance. The market will need to hit some fresh highs or lows in order to give that indication.

Have a great Thursday!

TLT

Out of OSK for a 39% Profit

Osk gapped up roughly 28% this morning on an upgrade and some news about a military contract. I bought this stock on June 17th after posting about it being a stock worth watching on June 10th.

Here's the chart:The gap up went right through my first profit target that was set at $18...my second target was $23 but I decided to bail out. Why? Well, I don't like holding onto a stock that just registered a massive one day gain like it did today. It might continue to go up, but, it might also sell off and close the gap...which I do not want to ride out.

Had this stock slowly krept up to my profit target, I would have only sold half my position, but I once heard that you should take quick "windfall" profits when they appear. Note that tajubg "windfall" profits is different than taking profits in general quickly...as quick profit taking in general is not a good strategy for trading. Unexpected "windfall" profits are a small gift that are occasionally given by the trading gods and they should be realized (in my opinion that is).

TLT

Nailed The Continuation Trade For A Quick 55 Pip Profit

A simple yet profitable currency trade is the "continuation trade." Here's a chart from Oanda that shows the continuation trade that I made this weekend.
Here's the setup:

• The currency pair must be in a strong trend on Friday and the pair must remain strong as the close approaches;
• Enter a position in the direction of the trend 5-10 minutes before the close (be careful to buy/sell before spreads increase) and set a profit target of 30-60 pips out...the size of the profit target really depends on how volatile a currency pair you trade;
• Make sure to set a stop...I used the SAR level for the above trade.

That's it...easy. The idea behind the trade is that the currency pair tends to continue in the direction of the trend when the markets open up in Japan and Australia. There are several reasons that explain why the continuation occurs and I'm gonna leave those up to you to determine. This has been the 3rd weekend in a row that I've profitably traded this setup and I'm sure there will be many more.

Good luck out there.

TLT

One More Time With The Same Setup

Once again, I was going through my morning chart scans and the Eur/Gbp caught my attention. The 5m, 15m, and 30m charts were all forming identical sell signals with the same setup that I posted about yesterday. Here's a 5 min chart that shows my entry:As you can see from the chart, the trade quickly went in my favor...usually a good sign. Then the pair bounced back just a little after it almost hit my target. I used the bounce as an opportunity to add to the trade. I like to use a smaller time frame when adding to positions, so I pulled up the one minute chart and waited for a good entry. Here's the one minute chart:As the above chart shows, I added right when the signal line of macd was about to make a bearish cross and the stoch was oversold and beginning to point down. I also placed a stop just above the upper bollinger band channel. This turned out to be a great place to add to the trade and my profit target was quickly hit. Here's the last chart which shows the profit target being hit:Target hit and 45 pips were put in the bank today. The pair continued to decline after my target was hit...maybe I should start leaving a piece of the position on to capture any additional pips. Any of you guys scale out of trades that way? I know that John Carter leaves a little on the table with his forex setups in order to catch extra profit if the trade keeps going after the target is reached. Regardless, I planned the trade and traded the plan and it worked out well. I'm gonna close down the charts and get a little legal work done today.

Good luck out there.

TLT

Nzd/Usd: File this one under winner

One of the most basic trading setups that I've been using for a long time gave me a good trade today and I was able to pocket 70 pips. It was a trade that consisted of selling the Nzd/Usd or Kiwi short. Here's the chart:Here's the setup:

1) There's an established downtrend or sell signal (or uptrend if you're buying) on the higher time frame...in this case the higher time frame used was the daily chart, and the sell signal for the daily chart was the same as the signal for the hourly...a macd and stoch combination,

2) The MACD signal line has begun declining and is about to cross the moving average,

3) The stochastic is oversold and is moving lower.

Once I saw all of these conditions in place, I placed the trade and set a stop just above the upper Bollinger Band and I set a profit target for 70 pips based on the lows from earlier in the day. This trade ended up being a textbook trade because it played out perfectly...have to enjoy it because that doesn't happen that often.

So how did I come up with this trade? I found it by doing my daily scan through the charts this morning. I like to look over all of the daily, hourly, and 5 minute charts for all of the major currency pairs and a few of the popular crosses every morning. Going through the motion of looking through these various charts in different time frames helps me stay in tune with the market and it often generates a few trading ideas as well. This is a practice that I highly recommend and it's easy to do. Just spend 10-15 minutes and look over charts at roughly the same time every day and make note of any potential setups, patterns or trades.

Good luck out there.

TLT

Honor Thy Stop...and Other Musings

Well, good morning. The markets are in panic mode and I even heard some chatter on Biz Radio this morning about the markets potentially being halted today. Right now that seems unlikely but we'll just have to wait and see.

As for honoring the stop, yesterday was a perfect example of how dangerous it can be to second guess yourself after you've made a game plan and initiated a trade. Perhaps QCOR is a little too volatile for a tight stop but that type of stop fits my personality. I have found that I can handle my emotions better by getting stopped out sooner and taking a couple of losses rather than using wide stops and sitting under water waiting for my position to come back. It works for me but not necessarily everyone.

When I take a position, I generally try to zoom in with an intra-day chart to pin-point a precise entry and if the position doesn't take off pretty quickly, it's usually a sign that I'm wrong and need to get out.

While tight stops may not be for everyone, one rule that does apply to everyone is honoring your pre-determined levels (whether they're stops, profit targets etc.). Had I lowered my stop or even just pulled my stop, I would be hurting today. Sure taking a small hit yesterday was not fun, but it's necessary and it's part of the plan. See the 15-min chart below. The green arrow shows where I went long and the red line shows where I got stopped out. More importantly the yellow line shows what I would have suffered through if I'd not have had my stop. Whew! That kind of drop can wreak emotional havoc on me and I imagine many other traders as well.

Bottom line, you've got to have a plan and stick to it if you ever want to even have a chance to make it as a trader. I'll be looking for new opportunities to enter QCOR and I'll let you know if I see a good set up.

Good luck out there.

TLT

QCOR: Trending Up in a Down Market

Finding stocks that are trending up in this bear market can be difficult but you can find some potential long candidates with a little work and a lot of patience. One that is really impressive right now is QCOR. This stock has been on a rampage and is still trending up in an aggressive manner. If your gonna go long in this market for any time period longer than a few hours and shorter than a few years, stocks like this are a good way to go.

One strategy that can work out favorably is to buy a stock like QCOR and simultaneously by a broad short index fund, like SH. This strategy can minimize you're overall returns but it will also cut out some of the volatility. If you buy a stock like QCOR and the broad markets tank, they could easily drag down QCOR with the overall market. On the flip side, if the markets rally, a well performing stock like QCOR should rally more than the overall market and then you get to book the differce between the index and the stock as profit. Let's take a look at the QCOR chart.
Above is a daily chart from QCOR saved after yesterday's close, which was October 28, 2008. I like the look of this stock so much that I'm calling a buy right here. If I'm buying in this market, this is the kind of stock I'm gonna buy. As of this very moment QCOR is trading at $7.77. I'll put in a protective stop at $7.45, which is just over a 4% stop loss and it's located just under the short-term trend line. Hopefully it will provide a little resistance.

There are 3 main factors that are triggering a buy for me.

1) Long-term trend is up--this means I'll only trade to the long side.

2) Good short-term trend that's making new highs on higher than normal volume--love to see this.

3) Moving averages are all saying buy and they're not spread too far apart, MACD says buy and the bb width is moving up but not setting highs.

So I've got my buy signal and my stop loss figured out, now I just need to set a price target. Since it's a strong stock making new highs, I'm going to shoot for $10.00 a share. If we hit that I'll immediately sell half and then move my stop on the other half up to just under $10. This is a profit target of roughly 28%, so I'm risking .04 to make .28. That gives me an R-multiple of 7 or a risk to reward ratio of 7-1. This is a somewhat big R-multiple (which is good) but, when using a trend following style system, I need high R-multiples because I could easily get stopped out by a violent whip-saw. If that happens, and the buy signals are still intact, I'll just re-enter the trade and try again. A high R-multiple will provide a profit even if you have a couple of unsuccessful entry attempts.

I will also use a wide trailing stop, probably 5%, just in case the stock goes up and runs out of steam before my $10 target.

I'll give and update within the next week and let you know how it's going.

Good luck out there.

TLT