Wednesday, June 1, 2016

10%+ Profit in Less Than 10 Days using Rubber Band Like Stretch

From the desk of Sagar Nandi and Superior Profit.

Well, I understated.

The actual profit would be about 15% in 4 trading days in the Short trade illustrated below. And the Long trade generated about 30% profit in 7 trading days. Both trades using Rubber Band Like Stretch and Release of that Stretch.

We may say, 10 score out of 10 in each of the trades in terms of Entry Timing. And equally high score in terms of Disciplined Profit Booking.

Once we have a robust trading system (I use CUE Global on Metastock) and follow Superior Profit disciplined Way, we usually end up with profit. As these two trades show.

Let us first look at what is Rubber Band Like Stretch and Stretch Release?

When a stock moves considerably up or down, it goes to a Stretched state - somewhat like a rubber band. And it usually needs to pause and take a breath before continuing in prevailing direction. When it pauses, traders would like to book some profit and that moves the price in reverse direction. When this reverse direction move starts, the rubber band Stretch is Released.  We say that the Stretch is Released.

This Stretch Release shows up as Up or Down Arrow in CUE Charts. This is a highly responsive signal. Meaning, it responds fast to rubber band tension change.

How to use it? If a trader is looking for Reversal Swing Trade to catch the local Top or Bottom, it may be done using Stretch Release. It could be used for Swing Trade as well as for Day Trade. Below real life trade taken in recent weeks examples illustrate the use of Stretch Signal in Swing Trades.

Note that Stretch Release is a "fast" signal. A trade entered based on only a fast signal is prone to whipsaw and stop out. That is why Superior Profit Way suggests to combine Stretch Release with additional confirming signals' before taking a Stretch Release Reversal Trade.

What could be additional confirmation signals?

It could be Heavy Activity at or just prior to Stretch Release. That typically indicates exhaustion and need for the stock to pause.

Another confirmation signal could be price hitting support or resistance level.  Such support / resistance could be in the form of CUE Memory Line, Double Top/Bottom or the Longer Term Direction Lines.

CUE Headwind signal could be yet another confirmation signal: Headwind indicating that up or down momentum is slowing down.

You may read more about Stretch Release, Headwind and other CUE signals and trading way in the Education Center Books.

Now let us go through an actual Stretch Release trade that was announced in Superior Profit Traders Community as the trade signals were generated.

On 24th May 2016 we had alerted about Chesapeake Energy (CHK) in our Traders Community. You may access that post here.

Below CUE Chart of CHK explains how the trade was initiated on 14th May'16  - the day when CHK went up by more than 10%. (this image is taken from the above mentioned Community post and annotated to explain the entry signals in detail).

​Following standard Superior Profit guideline, one would not take a Long trade when Weekly Backdrop is Bearish; as was in this case. So, this entry would be considered an improvised trade. And probably it was taken on the analysis that CHK was at extreme (Pendulum) Low and that price was reversing from Double Bottom with strong strength - indicated by the 10% move up on entry day. Our Superior Profit Trader who posted the trade also looked at some peer groups of CHK on 24th May - using Metastock Xenith/EIKON - coming to conclusion that the industry/sector state may also justify a Long position on CHK.


​How did the improvised trade play out? Let us look at CHK as of today, 31st of May (after Market Close) to see the result.
From the narration of points 1 to 3 we can see that the Long Trade using Bullish Stretch Release had resulted in 22% profit in 2 trading days. Assuming partial profit was booked and that remaining position is currently held at 9%+ profit, we may see that net profit as of today is about 15% in 4 trading days from 24th May Entry to today's date of 31st May.

Below is the brokerage snapshot showing entry price of 3.88 and 9%+ profit on remaining CHK position being held by a CUE trader - entry being on 24th May - precisely when the Community post was submitted.
The chart above also illustrates that Stretch Release could be used for Short trades as well. For example, at point 4 where Stretch Release in Bearish direction coincided with a Bearish Headwind and price bouncing down from Very Slow Direction line. That trade would result in profit of about 40% in 7 trading days. If partial profit was booked earlier around 20% profit level, this Short would result in a net profit of about 30% in 7 days.

In this way, following disciplined Superior Profit Trading, a trader could benefit from both Short followed by Long trade. Capturing a significant total of about 30%+15% = 45% profit in few weeks using Stock.

It was pretty good result in my opinion. And both the Long and Short the trades could be taken relatively easily using Stretch Release signal and combining it with other supporting CUE signals.

Does your system allow you to identify and execute trades in such unambiguous and easy way?

Sagar

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These products are not a recommendation to buy or sell, but rather a guideline to interpreting the specified analysis methods. Only investors who are aware of the risks inherent in securities trading should use this information. MetaStock in no way endorses the products and services advertised and accept no liability whatsoever for any loss arising from any use of these products or their contents.
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