Featured setups from Friday April 1, 2005 closing data symbol scan
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Notes for the Day
- there are over 200 stocks showing outside bars on Friday, out of our 800 long list of symbols. This is an unusually high number, showing just how nervous the market is. For today and tomorrow especially we must be ready for anything – including a surprise reversal. From long experience we know that outside bars near major market swings are frequently not followed up in the same direction, at least not directly.
- due to all the outside bars and the number of stocks which headed lower on Friday, there is a limited selection of safer short setups at this time, so focus should be on managing existing positions.
On Friday we were mentally prepared for a surprise reversal and sell off, and as a result we should all have some short exposure or at least have well-protected any long positions we may be carrying.
Entry and Exit Strategies
Entries: Each chart posted includes the TrendVue High/Low indicator in the chart legend, showing the high and low of the prior day. We refer to these values frequently for setting stops, alerts and initial protective stops.
Our trade entry methodology stresses that price should prove to us where it wants to go, consequently all of our setups involve placing entry stop/stop limit orders where a trade will be initiated for us automatically, if price is able to move in the expected direction.
When price does not comply, we evaluate the setup to determine if it is either a) an expanding pattern or b) an invalidated setup. For example, a 3 bar bull flag setup that does not trigger can be followed up the next day with a buy stop above the new 4th bar, provided that price doesn’t invalidate the bull flag pattern.
Exits: Once in a trade, we must place an initial protective stop as soon as possible. Consider this stop your crash stop – an emergency measure which you hope will never get used, but is there for your protection in case you lose all connectivity to your broker or some other unforseen event takes place. The initial protective stop, unless noted otherwise, is always at the opposite end of the bar used to trigger a trade.
For example, if our trade setup for a long trade is based upon a break of yesterday’s high, we will use yesterday’s low as our initial protective stop.
The next task for us, once in a trade, is to find the earliest reasonable opportunity to move stops up. Trade and risk management is a highly personal topic; we can only relate to what works for us. In general, once a trade is substantially profitable, or has started to trend on a 10 or 20 minute chart intraday, I move to a break-even stop immediately.
Once the trade has surivied its first day, we are already on watch to look for our profit exit. Here your personal objectives come into play. A longer-term investor using swing trading techniques to improve entry and exit will tend to give a trade some room. Our recommendation is to use the break even stop until the stock starts to trend (higher highs, higher lows or the reverse in a down trend).
Short term swing traders will tend to use price extension estimates and pre-place exit orders at these estimates. This discussion goes beyond the scope of our daily swing trade service, however we are happy to entertain questions in TrendVue Trader Talk on any subject.
Long Setups
General common strategy: Unless noted otherwise, buy stop just above the “high” value, with an initial protective stop at the low value of the bar, not below the bar.
Test of Bottom – Reversal
ERICY – while I have low expectations for this as a long, it is the first retracement after retesting a bottom, and this trade setup has been very good to me over the years. If filled quickly move to a break even stop – we should demand that price clear the three-day high if stopped into a trade here.
Retracement or Pause in Up Swing / Up Trend
MCK – healthcare – the gap now filled, MCK may well head right back down however for this first pullback I will stalk a long here; follow up on this tomorrow (Tuesday) if trade does not trigger today.
EDS – retracement following trendline “breakout” – note price pulled back to the trendline and reversed, giving a reasonable enough indication that EDS may trigger today. I’d like to see it hit the three day high if filled.
Short Setups
General common strategy: Unless noted otherwise, place a sell alert at or just below the low of the setup bar, and look for the first failed intraday bounce after the low has been broken. What we are looking for is price to push down, bounce a little, and fail again – this is where we want to get short.
Retracement or Pause in Down Swing / Down Trend
CSX – rail transportation – the rail co’s have been strong performers through this last quarter and are a favorite of many on the street for this reason, however they are by and large also trading near multi-year highs and appear to be stalling so aggressive traders might want to stalk this one, for one day only. CSX offers a stealth bear flag just inside the range – if filled, demand that price clear the 2 day low and ideally close below the range marked.
MEE – energy (coal) – what’s this, a short in energy? We don’t have to act on such charts but there is value in highlighting stocks struggling in a given sector or subsector, even if only to ensure that we don’t trade it long. In this case, MEE has bounced to overhead resistance – given the weakness demonstrated so far if / when selling pressure returns to the energy market, MEE would be a good candidate.
Special Situations
05.04.04 05:50 #