D'Angelo - Everybody Loves the Sunshine

SCALPING WITH THE 1-MINUTE & 3-MINUTE SPY CHARTS

During the trading day as I scan for set-ups, I keep the following internal checklist:

1) Where is the SPY on the price chart? What is the price context?

2) Are the 1-minute candles of the individual stock being considered for entry giving any hint about a shift in market control? Or giving clues about a potential consolidation?

3) What is the condition of the market from an overbought/oversold standpoint. Is the market hinting at a possible correction?


Where is the SPY on the price chart? What is the price context? (In relative order of importance)

1) Where is the SPY relative to intraday Fibonacci retracement levels? Is the SPY in the retracement zone?
On a gap above the previous day's high, I plot my Fibonacci levels from Yesterday's low to the Opening Range pivot high.
I'm not too particular about what defines "Opening Range". I use the first major morning pivot as my "Opening Range High"
On a gap below the previous day's low, I plot my Fibonacci levels from Yesterday's low to the Opening Range pivot low.
If the market opens within the previous day's range, I plot my Fibs from Yesterday's high to Yesterday's low

2) Is the SPY near a longer-period trendline? Or an intraday trendline?

3) Is the SPY near Yesterday's high, Yesterday's low, Yesterday's Open, Yesterday's Close, The Opening Range Low or High? S1 or R1 Pivot?

4) Is the SPY nearing a half or whole price number? Or other significant price level?

5) What does the SPY 1min 50SMA look like? Is it ascending? descending? flat?

In looking for an entry:
I prefer to see at least TWO forms of support or resistance on the 1-minute SPY chart.
I prefer if at least ONE of these forms of resistance to be a fib line OR longer period trendline


Are the 1-minute candles of the individual stock being considered for entry giving any hint about a shift in market control? Or giving clues about a potential consolidation?

1) Is the monitored chart printing a reversal pattern? What are the details of the pattern
2) Is there a consolidation? What does it look like?

In looking for an entry:
1) If the potential entry is a reversal play I watch for a strong hammer candle. (The smaller the real body, the longer the lower wick, and the stronger the volume on the candle the better.) I then watch the following candle I look for a gap from the high of the hammer candle OR a strong bullish engulfing candle of the hammer.
The candle don't always set-up in succession, sometimes its 3 bars (or 4) like: hammer, doji, gap up bar.
I am mindful of where the potential reversal bar is opening/closing high/low relative to the challenged support/resistance.
I want to see strength in the other direction. I want to see the opposing market force really gain control.
With reversals, I also look for a similar gap and go or strong bullish bar with the morning star , inverted hammer & harami cross patterns. I watch other reversal candle pattern too. But I find those three & the above hammer pattern work with the most consistency.
Most importantly, I want CLEAR signals from the market that reversal is likely. Indecision is not something I want to trade.

2) If the potential entry is a continuation play I watch for candle clues that the consolidation period is near an end.
I watch for 1-min BREAKAWAY gaps from the consolidation OR a strong bullish engulfing type bar that breaks the consolidation swing high. I want to see STRONG CLEAR indication that buying pressure has again overwhelmed the stock.
I also look at the bars within the consolidation. What do they look like? Is the action indecisive or whippy? Or is the action smooth and controlled...Is the volume during the consolidation light and downward trending....Does the consolidation fit the character of a market pause?

On the short side I trade the SKF against the SPY.
On the long side, I look for STRONG stocks (strong price action AND relative volume) that are TOPPING my daily watchlist. I am looking for stocks that are outperforming the market during pullbacks.


What is the condition of the market from an overbought/oversold standpoint. Is the market hinting at a possible correction?

To determine overbought/oversold levels, I watch the 8-period Demarker Indicator on both the 1-minute and 3-minute SPY charts.
1) If the market is ranging or in a weak trend:
I wait for both the 1-minute and 3-minute SPY Demarker to indicate an overbought or oversold condition (above 75 or below 25).
I want the ranging market to ripe for a reversal in direction.
2) If the market is in a strong trend:
I only initiate new positions after the 1-minute SPY Demarker has pulled out of the overbought/oversold condition. NO new long short/positions are put on when the market is overbought/oversold in the direction of the trend. I place little emphasis on the 3-minute SPY overbought/oversold condition in a strongly trending market.


Exits/Stops:
1) Exits with the strategy have been ongoing difficulty for me. The strategy I'm using currently (which is certainly not perfect) is to close my position into an a fib level/trendline/moving avg/price resis as the 1-minute SPY nears an overbought/oversold condition. Once I have a 1% profit, I place a stop at that level to protect at least some profit should my position pullback (I need to my pay rent haha).
2) I set my stop typically a few ticks below the low of the reversal bar I entered against. Occassionally, I will set the stop a few ticks below the low of the reversal bar's real body.

Sade - Slave Song

FIBONACCI RETRACEMENTS & TODAY'S LOW

Lately I've added to my chart a Fibonacci retracement plot of the low and high of the last 5 days. It's worth noting that the low tick of today's sell-off was made on the SPY within 4 pennies of the 50% retracement of last Friday's low to Monday's high. Props to Trader X for selling me on Fibonacci. Read his blog.

Jorge Ben - Menina Mulher da Pele Preta

12/08/08 - LONG TRADE - X: UNITED STATES STEEL CORP.

My apologies for the recent neglect of the blog. I've been very busy. I'm sorry.

X was on my watchlist today because: 

1) It is currently among the 100 stocks in my daily trading pool.

2) It was printing volume greater than 1.5 to 1 its 60-day average.

At 237, X formed an oversold (using the 8-period demarker indicator) hammer candle into an uptrending 50SMA on the 1min chart. At 237, the SPY was also printing an oversold condition into its uptrending 50SMA on the 1min chart.

I went long on the the open of the 239 X candle (after the 238 post-hammer bar printed a higher close). I exited the position on a close below the 1min 20EMA. However, X was, later in the session, able to rally to the 38 fibonacci extension (from yesterday's low to today's OR high)

Again my apologies for my recent neglect of the blog. I intend to return to regular posting this week.

 

Miles Davis - Blue in Green

USING DEMARKER TO TIME SPY 1-MINUTE CHART REVERSALS

***MOST IMPORTANT: I only feel comfortable using this method when market momentum is at its highest, open to 11:00am & 2:20pm to close.

Recently, I've been using the 8-period Demarker Indictator on the 1-minute to chart to aid in timing possible SPY reversals (and essentially SKF entries).

Depicted is Friday's 1-minute SPY chart and the six SPY reversal calls I was able to take advantage of. 

My priorities technically in looking for a possible reversal set-up are as follows.

1. OVERBOUGHT Demarker. Demarker must be printing a reading of at least 75. 80+ preferably.

2. CANDLE PATTERN. I must see a bearish candle reversal pattern.

3. RESISTANCE. I prefer TWO forms of resistance. (a fib line, a moving average, price resistance (typically whole/half numbers), a pivot).

I typically set my "mental stop" on this set-up a few pennies above the high of the SPY reversal candle that I entered against.

What I saw candle/resistance-wise at each point reversal point on Friday:

1. Candle: Off-setting bearish bars.

1. Resistance: Thursday's open, 38 fib retracement line (from Thurs low to high), Price resis at SPY 78

1. Set-up grade: A

2. Candle: Bearish engulfing.

2. Resistance: Price resis at SPY 77

2. Set-up grade: B-

3. Candle: Doji reversal (note price can't close above 76.50)

3. Resistance: Price resis at SPY 76.50

3. Set-up grade: B+ (notice the head and shoulders pattern in the Demarker indicator)

4. Candle: Bearish engulfing

4. Resistance: Price resis at SPY 76.50

4. Set-up grade: B

5. Candle: Big ugly red candle (note price can't close above 78) (note Demarker divergence with 307 high)

5.  Resistance: Thursday's open, 38 fib retracement line (from Thurs low to high), Price resis at SPY 78

5. Set-up grade: B

6. Candle: Ugly tweezer-top

6. Resistance: 62 fib retracement line (from Thurs low to high), Price resis at 79.50

6. Set-up grade: A-

11/18/08 - LONG TRADE - SKF: PROSHARES ULTRASHORT FINANCIALS

At 311, the SPY neared THREE forms of resistance on the intraday 1min chart. 1) Moderate price resistance in the 84.85ish area. 2) Resistance from Opening Range low. 3) Resistance from the 200MA . Additionally the Demarker was indicating an extreme overbought condition . My SKF entry was on the 311 bar as SPY rejected the resistance. My stop was set just above the OR low. My exit target for the trade was the support of the 25 fibonacci extension (combined with the 20ema) from yesterday's high to today's opening range low. The target was hit five bars later.

Wale - W.A.L.E.D.A.N.C.E.

PARTY TIME! TIME TO DANCE!!!!!!!!!!!

11-13-08 - LOL RALLY!!!! - LONG TRADE - COF: CAPITAL ONE FINANCIAL CORP

My afternoon strategy today was relatively simple. I monitored key price (whole numbers, half numbers)/moving avg areas on the SPY. Each time the SPY pulled back, I watched my Trade-Ideas scanner for a big cap name printing strong price action relative to the SPY.

As the SPY would break out of a resistance area, I would load into one of these relative strength plays.

At 229, COF began printing (above yesterday's high) a series of narrow range consolidation bars on the 1min chart. During the period of 229-234, the SPY pulled back approx 90 cents in a much steeper fashion relative to COF flat consolidation. I went long on 236 COF breakout bar/concurrent with the uptick in vol/strong SPY bar (price printing above Wednesday's open). I closed the trade out into strength on the 247 bar as the SPY neared 88.50 price resitance.

11/11/08 - LONG TRADE - GS: GOLDMAN SACHS GROUP INC

At 350, GS made its third test of the 50 fib retracement from Yesterday's High to the Opening Range Pivot Low. Typically a stock will break resistance on the third test. GS then consolidated under the fib line for two bars holding the 5ema. I went long on the 353 bar (concurrent with a siginificant uptick in volume). My target was the top of the fib retracement zone (62% retracement line). The target was hit 4 bars later.

My Morning Jacket & Erykah Badu - Tyrone (Live in Dallas)

11/11/08 - LONG TRADE - SKF: PROSHARES ULTRASHORT FINANCIALS

At 235, the SPY rejected the 62 fibonacci retracement of its recent (approx one month) trading range. Additional to this fib resistance was significant price resistance at SPY 92. Thirdly, The Demarker (lowest pane) indicated an overbought condition.  The 236 bar completed a bearish 3 bar pattern on the 1 minute chart. I went long the SKF on the 237 bar. My exit target was SPY 91 (SPY price resistance/just above Monday's low). This targest was achieved four bars later.

The last month or so, I have been trading the SPY and SKF in tandem this way.

What I look for in this set-up:

1. The SPY must be hitting at least TWO significant forms of resistance (a fib line, a moving average, price resistance, yesterday's high/low, opening range high/low, etc)

2. On the 1min chart, the SPY must print a bearish candle configuration adjacent to the resistance (bearish engulfing, doji reversal, offsetting inverted hammers, piercing pattern, etc)

3. The Demarker must indicate an overbought condition on the SPY 1min chart.

My SKF exit target is typically the nearest form of price resistance (typically a fib line or yesterday's high/low, etc)

Because of the manic price action, I don't usually use stops when trading the SKF (an added risk in trading this ETF)

But if the bid on the SPY starts to print above the resistance level that I entered against, I get the hell out of the trade.

SPY 2 HOUR CHART: SHOULDER OR BEAR FLAG???

Lightnin' Hopkins - Bring Me My Shotgun

HOW I TRADE

This is a brief summary of my primary trading strategy. I do, as market conditions dictate, trade additional methods.

I'd like to preface by acknowledging the following four blogs:

http://traderjamie.blogspot.com/

http://www.traderx.blogspot.com/

http://theimpatienttrader.blogspot.com/

http://highchartpatterns.blogspot.com/

Without their work, I would be a much lesser trader. 

STOCK SELECTION:

1. Prior to each market open, I scan the market for stocks meeting two criteria. A) A minimum 22 day average volume of 3 million shares per day. B) A minimum 20 day volatility of 0.6%. I then load that pool of stocks (capped at 100 total) into my trade ideas scanner. 

2. Next, I visit Trader Mike's site and examine his daily watchlist. I look for stocks outside my first scan hitting the following criteria A) A minimum 22 day average volume of 1.5 million shares per day. B) A minium 20 day volatility of 0.45%. I add these stocks into my trade ideas scanning pool.

3. From market open to approx 10AM-1015AM, I watch the scanner for stocks printing price up or down at least 3% for the day on volume at least 1.5 times the stock's 60 day average. 

This first half hour is very hectic for me. I am constantly swapping stocks in and out of my watchlist. If a stock drops below the 1.5 to 1 number, I expel it from my watchlist. It's gone. I don't want to deal with it.

I use this method because I have found that these strong price/volume stocks produce a far more reliable price action. I only want to trade the strongest stocks.

CONSOLIDATION CONSOLIDATION CONSOLIDATION:

I will only take a position in a stock that is breaking out from a basing pattern. I never ever ever buy on top of a vertical move. 

Some of my favorite basing patterns include: flags, wedges, head and shoulders, cup and handle, ascending/descending triangle.

I prefer buying consolidation patterns as it allows for favorable risk/reward scenarios.

I will only take a position on a stock that prints a notable volume consolidation immediately prior to breakout. I don't want to take positions on stock printing heavier volume prior to breakout. I don't like indecision....I just move on.

I want to buy an orderly base. If the base appears too whippy/choppy, I move on.

There must be an uptick in volume on an upside breakout. 

I primarily use the 1min chart to find consolidation patterns. I'm constantly cycling through my watchlist to find a favorable pattern. 

HOW I USE MOVING AVERAGES:

I use the following moving averages on my charts:

5ema, 10ema, 20ema, 37ema, 50ma, 200ma

I pay attention to how price behaves relative to each of these ema. Whether or not price closes above it/below it.... Candle shape/pattern relative to it, etc.

5ema: I use this ema mainly when reading the 15min chart. I watch behavior/proximity of price relative to this ema. I will not take a position in a stock printing price dislocated from this ema

10ema: This ema, appears "shadowy" on my charts.  I only use this ema, using a similar methodology to the 5ema, occasionally on the 15min chart

20ema: A well behaved trending stock observes this ema as support/resistance

37ema: I picked up the use of this ema off trader x's blog. It is often support/resis on the 15min chart. 

50ma: This my key moving avg. I pay very close attention to price relative this simple moving average on the 1min chart. If price is printing too far above or below this ma, I stay out of the trade.

200ma: Don't cross the boss.

CHARTING TIME FRAMES:

I primarily use the 1min chart for entries and exits and in scanning for set-ups. I always always always check the 15min chart and daily chart for price/moving average support/resistance. I will not take a trade if something is amiss on either chart. I, too, occasionally use 60min chart in conjunction with the 1min 15min and daily.

HOW I USE FIBONACCI:

Again this is something I've added to my trading through reading Trader X's blog. I plot my fibonacci lines from the previous day's high/low to the opening range first pivot low/high.

He explains it much better than me here: http://traderx.blogspot.com/2008/10/fibonacci-lines-indicators-and-holy.html#links

I watch the 38, 50, and 62 retracement levels as support and resistance. I pay close attention to candle/price behavior relative to these levels. 

I also watch the 25 38 and 50 fibonacci extensions. 

These levels are typically where I set my exit targets.

I look for confluences of important moving averages (20, 50) with a fib level near favorable price conditions for especially strong set-ups. 

In addition to fibs, I watch these price levels: Previous day's open, Previous day's close, Yesterday's high, Yesterday's low, Today's high, Today's low, Today's Opening Range high/low.

A FEW ADDITIONAL NOTES:

I NEVER trade the time period 12 noon to 2:20pm. EVER. I don't like the price action during this time. I prefer not to trade it. 

The majority of my trades take place between 10:15-11:00 and 3:00 to close.

I typically take between 1-6 trades per day depending on market conditions. 

LESSONS LEARNED (and still learning):

KNOW THYSELF

A SUCCESSFUL TRADING METHODOLOGY COMPLIMENTS THE TRADER'S PERSONALITY

I've learned about myself that:

I need strict rules to remain consistently profitable.

I am incredibly uncomfortable in a losing trade.

I prefer to make less money taking fewer but stronger set-ups.

Portishead - Cowboys (Live Roseland NYC)

11/06/08 - LONG TRADE - SKF: PROSHARES ULTRASHORT FINANCIALS

At 1003, the SPY began to form a bearish flag consolidation on the 1min chart. At 1017, the SPY made a test of the 50% fib retracement of the market's current trading range (approx. 83.50 to 105.50). (I have been using this fib alignment on the SPY a lot in my recent trading. These retracement levels have been strong support/resistance for the SPY for a few weeks now.) Back to business, I entered the SKF on the 1026 bar and exited on the 1029 bar test of the low of the day.

11/06/08 - SHORT TRADE - AXP: AMERICAN EXPRESS COMPANY

Between 1030 and 1110ish, AXP formed a bearish base on the 1min chart (Note lower highs and declining volume). Between about 1055 and 1110ish the SPY attempted an upward move. AXP's participation in this pop was minimal. AXP's weak strength relative to the broader market made this bearish set-up stronger for me. I went short on the 1110 bar.  My exit was on the bullish 1124 candle (in the vicinity of the 38 fibonacci extension.....the 38 fibonacci extension from the previous day's high to today's opening range pivot low)

CHARLIE GASPARINO ON THE (SPAGHETTI) SAUCE

Talking Heads - Born Under the Punches (Live in Rome)

MY TRADING STYLE

A clear explanation is in the works. I will try to explain my style/trading rules within the week. This will include how I only trade stocks printing strong price action/relative volume, how I use fibonacci retracements/extensions to guide my entries & exits, how I use moving averages, and what consolidation/reversal price & volume patterns I look for.  I owe much of my trading style to the traders I have linked to on the Blog Roll. I highly recommend each blog. I read them!

10/30/08 - SHORT TRADE - GS: GOLDMAN SACHS GROUP INC

At 10:30 AM, GS (following a second touch of the 50% fib retracement line on less momentum) started to form a narrow range/low relative volume series of bars on the 1 minute chart. The consolidation occurred at the bottom of the fibonacci retracement zone of the previous day's low to the opening range high. I went short on the 10:41 bar.