Tuesday, December 13, 2011

Studying Consolidations in Detail...

MetaStock SPRS Series - Week 46 - TechniTrader® Weekly Discussion for MetaStock Users: EME - Studying Consolidations in Detail - December 12, 2011
By: Martha Stokes C.M.T.


Today we are going to study consolidations in more detail.

Consolidations are the basis for most swing, day, and momentum energy moves. It is therefore important to recognize the difference between a strong consolidation, a weak consolidation, and a tiny run that may look like a consolidation but is actually not one.

In this discussion, we are going to study a consolidation that stepped down then formed a long white candle. These patterns are often “gottcha’s” for retail traders who assume a downtrend or sell short opportunity is present when in actuality, other factors are causing the mild retracement.

EME on the chart below has a solid consolidation for the past 4 days. It ran up with 2 gaps and settled in to consolidate just below the previous short term highs in mid October.


Chart 1

This pattern is called a “resting phase” which means the stock is resting after moving up quickly.

Stocks that rest rather than retrace immediately often have strong energy behind them.

Often these patterns form during quiet accumulation periods with large lot institutional investors or traders.

The consolidation is nice and horizontal without any up or down action that would be a tiny run. It is building energy. Green Volume bars are stronger than the red volume bars.

Yet the next day it forms a broken step, with a surge of red volume or downside volume. Novice traders using the broken step sell short entry signal would immediately jump into a sell short position because they are not studying all of the areas of the chart that need to be analyzed.


Chart 2

The next day the stock moves down a small amount and the sell short trader is excited that they are in a good selling down trade.


Chart 3

Then comes the “gottcha” the next day. A big white not only wipes out scant sell side profits, it nets the trader a loss on the trade.


Chart 4

So what went wrong? Why was the sell signal and volume not enough to determine a sell short trade?

First, you have 2 common gaps on the initial run up prior to the resting phase consolidation. Those gaps are common, common gaps fill easily. So the move down was mostly a fill the gap scenario NOT a shift of sentiment.

Buyers, big lot buyers had been moving into the stock at the gap level. So as the stock dropped to their bracketed controlled entry price range, their orders were automatically triggered and the stock ran up that day.

Notice that the white candle remains contained within the original range between the low of the gap and the high of the consolidation. This is large lot activity triggered by their price range being hit.

We often see a good setup with a resting phase consolidation that then turns down weakly for a day or two only to move right back up.

This is because in these resting phases of consolidations, the buy side is usually in control. We have seen many of these patterns of late and too often retail traders are caught on the wrong side of the trade, selling short, OR they panic after buying into the stock, sell in panic, and then watch the stock recover as soon as they are out of the trade.

Trading profitably takes more than an indicator crossover, or buy signal, you need to really study what has occurred recently and take that into consideration as well.

You need to know who is buying, who is selling, and why the consolidation formed in the first place.

Then you will know the true breakout direction for that consolidation.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2011 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.

Friday, December 9, 2011

How to Choose Your Strategy...



How to Choose Your Strategy: Part one.   Presented by Nicole Wachs of TradeKing

Originally presented on 12/8/11

 During the first segment of this popular four-part webinar series, Nicole covers underlying stock analysis and news events. Parts 2, 3 and 4 will focus on critical aspects of options trading. Part 2 continues with determining your outlook on implied volatility and part 3 demonstrates how to align your outlook with the option greeks. In part 4, Nicole will bring everything together and provide a time saving tool to whittle down 40 option strategies to two or three potential candidates.

Nicole Wachs is TradeKing's director of education, where her goal is to provide the best content possible in order for TradeKing clients to become better traders and investors. Prior to TradeKing, Nicole was an Option Specialist, Market Maker and Trainer for Goldman Sachs, trading options, equities and index products as a member of both the American Stock Exchange and the International Securities Exchange. Nicole has been quoted in Bloomberg, SmartMoney magazine, Barron's and other publications, and appeared on Fox Business News and CBOE.com. She holds a Series 7 license and has formerly held the Series 3, 55 and 63 licenses.

Monday, December 5, 2011

MetaStock U - Watchlists are a Trader's Quick Stock Pick Resource


MetaStock SPRS Series - Week 45 - TechniTrader® Weekly Discussion for MetaStock Users: CONN "Watchlists are a Trader's Quick Stock Pick Resource" - December 5, 2011
By: Martha Stokes C.M.T.

Often times traders will ask me how to streamline their stock pick selection process. To many times I hear traders say they are spending many hours trying to find stocks to trade for the next day.

Trading shouldn’t consume your life, even if you are retired or doing it full time as a career. Remember that every hour you spend trying to trade or find stocks to trade is costing you money. Your time is money. Consider how much your hourly wage is or was, then think about how much time you spend on trading. Then think about the amount of money you put in your account as profits versus the hours you have spent. Are you really making money? Or are you doing this for a hobby?

Your profits should equal the same or better hourly rate as your prior profession. If not, you are doing several things incorrectly. You are making common mistakes that drag retail traders down into the trading bog without them even realizing it.

One thing you must learn to do is to make everything about trading efficient, time constructive, and cost effective. Trading as a career is a business so treat it like a business. If you are trading as a hobby and are not serious about making money, then you don’t need to read any further because I have nothing that can help you.

Let’s talk about WATCHLIST.

A watchlist is a SMALL list of stocks that you watch for an upcoming entry. Watchlists are critical for all trading styles: day trading, swing trading, momentum trading, position trading, and yes even long term investing.

Building a good watchlist requires understanding what you are doing in terms of your trading style. Often times traders are simply meandering about trying to find a stock to trade that will make money rather than being organized, structured, and have a complete process for trading step by step.

The watchlist we are going to discuss today is for very short term trading, either swing or momentum. Often times stocks will show up that are already moving in a run up or a run down and the entry is not ideal. The risk to reward ratio is not sufficient to net good profits.

Most traders get frustrated, irritated, or despondent as they see stocks running while they are not in the run. Instead of getting upset, put the stock on your swing trading watchlist.

Then wait for the retracement and enter at the better entry where the R/R is significantly higher.

By taking a few minutes to put a stock symbol on your watchlist, you are saving time. You now have a stock you know is moving, and you can watch for a better entry which lowers your overall risk.

During momentum and velocity market conditions, watchlists for short term trading are crucial as runs move so quickly you must have your stock picks ready to go before they start the run.

CONN is a good example of a stock that would be something to consider for a Swing style watchlist. It has accumulation going on, is moving in a peaks and valleys trendline pattern, and has plenty of upside run gain potential.

Right now it is overextended with a long wick and is near a bottoming resistance level. But this stock has clearly shown lively action of late. So it is a watchlist candidate.


Chart 1

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner

©2011 Decisions Unlimited, Inc.

Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.