All Entries in the "chart patterns" Category
Trend Line Entries: Tilted or Flat?
April 5, 2011 at 2:00 pm
I take a lot of trend line trades, as they give me a clear indication that price is either clearing an important level, or that it’s making a meaningful turn.
Recently I was asked why some of those trend lines are flat (lateral), and others are tilted. Additionally, I was asked how I determine my entries on each. Here’s what I said:
Whenever a trend line is slanted, I go with a break of the trend line itself. In the case of a bullish trend line break (a move above a descending trend line), I’ll place a buy stop just above the line itself, perhaps only a couple of pennies above it. These tilted trend lines are themselves the resistance for a stock, so once they’re broken, the stock tends to be free to move higher.
Whenever there’s a flat trend line of support or resistance, it’s evident that price is bumping up against a key zone which remains constant. Sometimes this is at a round number, like $100, but it doesn’t have to be. The way I trade these flat trend lines is to set a buy stop 10-15 cents past the resistance zone, as that will help to confirm I’m entering upon a true breakout that’s taking place rather than a brief penetration of only 1-5 cents which could prove to be a head fake.
When you’re drawing your trend lines, consider the overall situation. Is price struggling to clear a constant level? Use a flat trend line if so. If price is simply seeing a counter-trend pullback, then the pace of the pullback is better seen with a tilted trend line .
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
One Intraday Setup That’s Working
September 28, 2010 at 9:38 am
In a world dominated by algo’s and machines, the astute trader can still turn a profit. It’s true, despite what many losing traders might tell you.
It takes adaptation, some ingenuity, imagination, and of course, thinking outside the box. For the creative trader though, new patterns will emerge from which profitable trades can be made.
So today, I wanted to point out to you one such example. I won’t name the stock, because it doesn’t matter, but here’s the chart from the opening 50 minutes or so:
As you can see, this stock gapped higher, ran a little more initially, and then began to roll over. The selling intensified as new lows were made on the session, and the gap began to fill before a brief period of rest set in. But that wasn’t the end of the story. Conventional day trading wisdom says this gap keeps getting filled, but only if another new low is made with a break of that intraday support.
Lately I’ve noticed this kind of setup – and you can reverse it with a downside gap if you’d like – offering some good plays. I had one finger on the trigger to short sell this one upon a break of that support, but it held just above the whole number. As the stock started to catch a bid, I went long with a very tight stop – only $0.06 from my long entry. And only 10 minutes later I was flipping out my shares for a quick $0.50 winner.
** For those wondering, that’s a reward-to-risk ratio of better than 8:1.
This setup offers two things I really like…
First, it offers very minimal, defined risk. If support (or resistance in the case of a morning gap down) gives way, I’m out quick for a small loss.
Second, it offers a great pivot area where emotion is building. The battle that took place at support was really something, and once one side began to win out (in this case the buyers), it sparked a quick move away from that level.
So, keep an eye out for this setup – it’s been a great one to trade. Gaps which only partially fill before hesitating at a level just might offer you a quick, profitable reversal play like this one.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Why I’m Buying Financial Sector ETF’s
September 1, 2010 at 9:13 am
Financial stocks have been hideous. Banks, brokers, you name it and it’s been taking it on the chin lately. Shorts are getting cocky.
What’s so interesting though is that, like the market, many of these stocks have a shot at establishing a higher low on their daily charts relative to the July low – if this pullback finds buyers.
I should clarify, I was once told that “IF” is a really big word for only 2 letters. That’s true, but let’s look at the financial sector ETF’s, starting with XLF.
By the way, the points stated below also apply to FAS and UYG, which I’ll review as well.
As a technician, I realize perfection isn’t to be expected when looking at a chart. Algorithms and savvy traders alike recognize that the head fake breakout or breakdown can be a fabulous way to establish reversal positions. And this is one such candidate.
With the July 1st low of $13.34 getting broken by a nickel just last week, XLF has stabilized (for now anyway). I like that for a few reasons…
- First, it shook out some traders on that ‘breakdown’ through support.
- Second, it’s frustrating those who got short on the break, providing no follow through yet.
- Third, there’s a downtrend line just overhead which was established throughout August, which if crossed, would provide another technical reason for buyers to enter (or re-enter) the picture.
That leaves 3 potential trader types as would-be buyers if an advance begins…
- Shorts would need to cover.
- Shaken-out longs would want to re-enter.
- New longs would want to establish positions.
So there is some appeal here, on both technical and psychological grounds. Well-defined pivots like this from key zones can produce explosive moves – particularly when multiple groups of traders may be poorly positioned.
The Plan
With XLF churning over 70 million shares on an average day, this thing is not a fast mover. Plus, it’s range-bound with the $15 zone offering formidable resistance over the past 3+ months.
I’m establishing a long position at current levels with an initial stop stop in the $13.20 area (1/2 position beneath last week’s low), and a final stop just beneath the $13 level. That would be favorably offset with a potential move back up to the $15 neighborhood where key resistance resides.
The aforementioned $13 zone offered a multi-month peak back in May of 2009, and there’s an unfilled breakaway gap from August 2009 which could get filled on a continued slide from here. So, I view that as an adequate loss-cut area for this trade.
If this thing is able to gather some traction, I’ll then lighten and tighten (peel off pieces on the way up and adjust my stop accordingly). I’m expecting to be in it for a few weeks if it works, so I’ll be patient along the way.
Here’s a closer look at the XLF chart for you:
Not to be forgotten are the leveraged ETF’s, which offer more bang for the buck. UYG is the Proshares Financial ETF, which is essentially the 2x levered version of XLF. Using the same rationale, I’m looking for UYG to return to the $58.50 resistance area while using a stop of $46 should support happen to get broken solidly.
Here’s a closer look at the UYG chart for you:
Finally, the title of “most slippery” of the levered financial sector ETF’s goes to FAS, which is the Direxion Financial Bull, which is 3x the movement you’d expect to see in XLF. Like the other charts, I’m looking for FAS to return to resistance, which is in the $24 area. Should it happen to break down, a gap fill from August 2009 down to the $16.50 area would be my cue to exit.
Here’s a closer look at the FAS chart for you:
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
Ashland Still Has Room
August 5, 2010 at 6:52 am
We’ve seen persistent strength in this market since the July 1st low, and while the long side has been the one to trade on, it’s still important not to chase extended names.
Fortunately, looking through hundreds of charts each day can still yield several opportunities, particularly if you know what to watch for. Too many traders fail to recognize the value of rest for a stock, and if it hasn’t moved in several days they tend to forget about it. My take is that those rest phases can be the pause that refreshes, especially if there’s been some recent momentum present.
Today I’m bringing you one such stock. It’s been climbing very well since turning the corner several weeks ago, and has also done an excellent job of digesting advances with these rest phases. There’s still some room for this one in the short term, so it’s on my radar.
I’m watching ASH for a push through short-term resistance at $53.10 for a trade. One higher low has already been established, and the stock has been basing for the past 8 sessions after a solid advance. This one looks like it may make a push toward the downtrend line which has been in place since April, which also offers a logical spot to book gains (if reached) in the $55.50 area.
Here’s a closer look for you:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Homebuilder Stocks on Solid Foundations
August 3, 2010 at 7:12 am
The stock market is often times simply a market of stocks, meaning that it’s necessary to sift through them all in order to find some which appear tradeable.
Occasionally though, we notice sectors moving in tandem, giving us multiple opportunities in the same group. That sometimes gives us a chance to identify leaders and laggards, while other times it shows us greater confirmation that something is developing.
Right now is one of those times for the stocks of homebuilders.
Most of them have similar chart patterns, which is the rounded bottom pattern (or rounded low), and they’re setting up to confirm bullish reversals in the coming weeks and months.
The (Floor) Plan
Moves which are expected to take up to a couple of months is a longer timeframe than I generally tend to trade, but the nature of this pattern is such that it should take longer to play out. So, my plan in trading these is to establish small positions, add to them upon further technical evidence of a trend shift, and manage them as position trades. Because I’m an active trader and expect these to work over the course of a couple of months, I don’t want them on my screen every day. As a result, I’ll be utilizing long-term retirement accounts as the ‘home’ for these homebuilders.
Keep in mind, I’ll be maintaining protective stops just in case these patterns don’t pan out, and I will be starting small and looking to add later. But the technical foundations are there for these longer-term patterns to play out, and I like the risk/reward they’re offering.
Here’s a quick rundown of several I’m seeing…
LEN trended lower from its April price spike to fill a gap from January, which is technically healthy. In recent weeks, the downtrend has stalled as price is stabilizing just beneath resistance:
DHI pulled back enough to take out its December 2009 low, and not by much. That kind of move often shakes out some traders who will now likely add to the strength by jumping back on board if this rounded low pattern is confirmed:
HOV briefly undercut support from early this year on its latest selloff, which was a nasty 57% correction. Price has stabilized in recent weeks with some short-term higher lows, and this one still has plenty of room to rally:
PHM trended persistently lower after topping in late-April, and two positive things have happened since then. First, the decline has made no progress in 2 weeks. Second, a rounded low is in place, which if confirmed, could ignite a solid push higher as this one retraces at least a portion of the May-July selloff:
RYL sold off sharply from its April highs, but for the past several weeks, price has stabilized and established support. A move up through resistance would set this stock on the path toward higher prices:
MTH has found recent support after a big correction, and here again, the rounded low would be confirmed with a move up through resistance:
KBH was cut in half from its April peak to July low, and in recent weeks has carved out support. Price is now beginning to curl higher, and a move through resistance would confirm that:
SPF gave up 58% during its harsh selloff between April and July, but now is gaining strength and looking to accelerate higher if resistance is cleared:
Finally, TOL is looking good after finding support in July and creating some short-term higher lows in recent weeks. A push through resistance would free up this stock for higher prices as well:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
GS Getting Ready
July 27, 2010 at 7:23 am
Financial stocks are always on the radar of traders, and GS is usually at the top of the list. Interestingly, this one looks like it’s gearing up for a move of its own.
After undercutting support on July 1st, the stock began to grind higher, eventually taking out the late-June high on strong volume. Since then, a rising trend line from the low has served numerous times as support. Over the past several sessions, some narrowing consolidation has been seen with the creation of a small descending trend line just overhead. These two trend lines are now squeezing price in a pressure-chamber fashion, and one of them is about to give.
Typically when two trend lines are vying for control, the longer one tends to win out. In this case, that could bring an upside resolution to this pattern. In keeping with the recent market strength, that’s a distinct possibility.
I’m watching GS for a push through the trend line at $149.10 for a trade. Earnings have already been released, and this is a highly liquid stock. Could be good for a few quick points, but the buyers will have to emerge and push prices beyond the trend line in order to get it. An unfilled gap from April extends to the $160 area.
If instead the lower trend line is broken (currently at $145), that would be a failure of this bullish pattern and would leave the stock vulnerable to at least a partial retracement of this bounce.
Here’s a closer look for you:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Bidding On BIDU
July 26, 2010 at 7:19 am
When trades come along which offer potential on multiple timeframes, I always perk up. If one timeframe doesn’t appeal to me, the other can still add to my account.
BIDU is one such setup right here. The channeling stock has been range-bound since early May, and a breakout may be coming soon from this rectangle pattern. Upper resistance is well-defined, offering day traders a quick-hit setup for an intraday breakout play. But with confirmation of a breakout – meaning, a close above that resistance level – swing traders also have a shot at a measured move to develop in the coming weeks for a $12 advance to the $90 area.
A breakout could come any day in BIDU, so I’ve got it on my radar for a trade if it can push through the $78.65 resistance area. This one doesn’t have a real clear-cut exit as a swing trade, so it isn’t one I’m planning to keep a long time… Just long enough to get paid and move on to the next idea.
Here’s a closer look for you:
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
