A Question about Entries - David C

"This question comes from David C, an active SpikeTrader - Alex"

I have a question for the group regarding Entries. I have been having difficulty lately making the decision to pull the trigger on certain types of entries. I realized I don't actually have a sound methodology/logic. I am curious as to what others do in these situations: I will give you two examples using Buy Stop Limit Orders:

1) Gap Moves - Stock ends Friday at $29.90 with a high of $30.0. I place a Buy Stop Limit Order at $30.01. I believe the stock is ready to move higher. On Monday it gap opens at $30.50 and continues to move higher. What do you do?

On the one hand the stock is doing exactly as you had hoped, but on the other hand, how long do you wait for a pullback, what criteria do you use, and if it pulls all the way back to $30.01 do you still want it?

2) Failure to hit your Buy Stop - Price never gets to your Stop, it either declines or remains flat. I have seen some Spike members pass on this trade altogether, but sometimes they buy at the lower price. I realize both answers may be correct, by I am confused and would love to have more color on this.

On the one hand, you bought the stock you wanted at a better price, but on the other hand, if you saw this type of price action on Friday (before you placed your order) would you still want this stock? And I know you are probably doing your best with your one and only Spike pick for the week, but would you change any decision for your personal account?

Of course the goal is to make the trade if the probability is still in your favor. I have closely followed the Spike group for a few months now and sometimes they take the trade and sometimes they do not.

What criteria do others use in these instances? Personally, I have had several trades this week that gapped up on Monday and I did not make an entry. So far, they have gone on for much larger gains on Wednesday and Thursday. Last week a large gap down on Monday cost me 10+% on my SpikeTrade pick. I had believed that most of the time the gap is filled sometime during the day, but this was not the case with any of my selections. I had to decide whether to chase and for now I just watched.

Appreciate any responses.

David C

How to scan stocks?

I am a new Spike member and am viewing videos in the vault. I’ve just watched Jeff P’s presentation on how he selects his Spike pick every week, and I wanted to know if he or any other Spike member could or would recommend a stock screening tool that would screen stocks as his would as he described in his video presentation.

I use Qcharts.

Thank you,
Lynne B

MACD Divergence Scan - a Question from Danny B

I recently reviewed John T's presentation to the Spiker Group. In his presentation he touched on a stock scan using MACDH Divergences and New High/Low criteria.

I have been attempting to create such a scan in Trade Station for several weeks to no avail. I have searched the TS support forums and tried to copy and paste code but my proficiency level is sub par.

Are there any TS Spikers who can assist me with constructing such a scan? If so, I thank you in advance and will look forward to reading your reply's to this post. And thanks to John T's presentation and drawing attention to this scan. Otherwise I would still be (and continue to be) a student of TS programing code.

Regards,

Danny B

A Question of Volatility - from David L

Market Behavior

I am a new but active trader, both with day trades and swing trades daily. In developing my trading skills, I have noticed a recurring pattern and am interested in what the behavior is behind it.

This week, I had a good trade with Nabors Industries (NBR.) I went in , short, Thursday afternoon when it was testing resistance at the $19.15 level. There was tremendous buying pressure throughout the last part of Thursday, with a clear sell-off late in the day. I held off taking profits, given the sell-off pressure, to take my exit Friday morning. The wait was well worth it, with the stock falling in early trading to below $18.00. I took my profit and did not look back.

My question for the group is this - I have noticed this type of price pattern with some regularity - very strong buying one day, with very strong selling the next. What is the basis of this behavior?

As a novice, I am assuming, a large fund or arbitrage has approval to buy a lot of stock in a particular range and does so on a particular day. Within this buying there are a lot of shorts riding the upward pressure. Then the next day the shorts are taking their profits - as I did. However, the sell-off the following day is at a much larger volume than I would expect. Is there something else going on in this pattern? I have made several successful trades following this pattern, but I would feel more comfortable if I understood the reasons for such price swings over two days - often without any news releases tied to the swings. Any suggestions are appreciated.

David L

Statistical Arbitrage - a queston by Ricky C

I was wondering if anyone has had any experience with pair-trading or statistical arbitrage. I am interested in it because I have an opportunity to learn from some local traders in my area through an extensive course. In all of the introductory trading books that I have recently read it is not mentioned at all. Nor have seen any statarb books in particular.

The only things I have read about it are the wiki entries and other brief summaries. I was hoping someone had more experience in this. I became very interested when reading about a trader who posts on trade2win (a trading forum with a pretty bad signal:noise ratio, like all forums), grey1 (iraj), who said he liked arbitrage methods and was very successful. His posts were inspiring to say the least. My interest in statarb is not to use institutional money to trade, but just to use my own money.

Thank you in advance for your replies.

Pyramiding - by Gerald O

I just struggle with two concepts and I don’t know how to solve the conflict between them.

The pyramiding strategy as discribed by Darvas and Livermore calls for continually adding to my position on a scale-up – but at this time the price is normally far above the moving average (what we call at value). On the other side, the ‘greater fool theory’ by Alex prohibits to buy above value or the moving average…..’

I look forward to a fruitful discussion…

How to read MACD Signals? - by Didier F

I would like to post this question. There are two images attached.

I’m using the Triple Screen with the MACD 9 12 26 and the force index 13 periods. These indicators are going up on a weekly chart and don’t show any divergence or weakness. On a daily chart, however, these same indicators are drawing a shape common to most of the indexes and stocks I follow. See attached XFN as an example, the ETF of the Canadian financial sector.

I wonder how to analyze the chart in order to look for a trade. I also wonder when the divergence will be over in this example.

Thank you very much for your input.

Didier

Explosions and Entries - response to Didier and Stephen M - by Steve A

I am new to trading, and after missing several strong moves by the stocks that I have been following and trading (DECK, AVY) I began to feel pretty frustrated, like so many others, and didn't know how to handle the situation. Didier and Stephen M have articulated this very well. I felt though that there had to be a way to do this - and it would have to involve not only careful entry technique but also a somewhat different attitude toward the quality of the fill.

In the course of trying to get in on Monday and missing that move, and then getting whip-sawed on Wednesday, I noticed some possibly interesting things on the intraday charts and decided to look into it further.

Below is a 25-min chart for AVY covering Mon 3-23 through Wed 3-25 [CHART 1]. It shows a series of short-term areas of support and resistance that you don't have to squint too hard to see. (But the chart is a little busy, so it will take a little scrutiny.) There are two points of support at 22.10; one point of resistance and one or two of support at 22.50; and solid resistance on Tue 3/24 (and possibly the close on Wed 3-25) at 23.00.
I noticed these zones during the day on Wed. Since I did not have any idea which way the market would go, I decided to try a buy limit/buy stop (OCO) order that used these zones. Around mid-day I placed a buy limit order at 22.60 (just above the 22.50 area) with a stop at 22.10 (a rookie round stop!). I also placed a buy stop order at 23.00 with a stop at 22.60. As price dropped, the limit order was filled (no slippage), and as price dropped further the stop was triggered. Price touched the 22.10 support level and bounded back up to near the 23.00 resistance level! If I hadn't used such a dumb stop I might have survived the trade. I thought, "Well, that was quick," but then I thought that maybe there was something to this support/resistance business. I decided to try the same thing the next day


Today, Thu Mar 26, I placed another buy limit/buy stop (OCO) order before the open: buy limit 22.60, stop 22.07 (a few ticks below the 22.10 line); and buy stop 23.00, stop 22.43 (below the 23.50 line). I was filled at 23.28 - that's 28 ticks slippage, but I did get in and have a little ride (see CHART 2)! Yesterday's support/resistance lines weren't really tested today, but price went up to 23.60 in the first half hour, hovered between 23.00 and 23.60-23.70 for half the day, then oscillated around 23.70 (23.70 zone not marked on chart) before breaking out to close near 24.00.

Looking back on all of this, I think that the lines of support and resistance may have been useful guides. I also may just have been unlucky (first trade) and then lucky (second trade). Time and more trades and experience will tell.

In fast markets, slippage and gaps are inevitable. I think that when things are squirrelly, as they have been lately, if a decision is made to trade, bad fills should be anticipated and controlled with very careful money management (stops and position size). It is likely in such conditions that entries will be missed, winning trades may not be as good as usual, and losing trades may increase. I am guessing with this, but it stands to reason that when uncertainty goes up, the results have to suffer somewhat.

One other point: Besides the issue of thinly traded stocks usually exhibiting more slippage than very liquid stocks, I noticed that of the two stocks that I have traded so far, DECK seems to have a much higher bid-ask spread than AVY, even though they trade with similar volumes (1/2 to 1 million shares/day). This is something that I will watch out for in subsequent stock picks.

Entries - by Stephen M

This comes from Stephen M, one of the leading SpikeTrade Members. I hope that some of the responses will include charts! - AE

I would really like to see a blog topic on entries started. It seems that the group is missing some nice gains as a result of picks for some but entries for others. Take LDK for instance. Up 114% for the week. It showed a beautiful descending wedge and bullish divergences on the weekly chart on Sunday. On Monday it took off. It seems to me that a key objective in front of a tremendous bullish background is to "get long." I remember watching an old VHS tape of you on the "Triple Screen Trading System" as well as in camp videos. In there, questions were asked as to limit orders, etc., etc.. Your emphasis was when these patterns develop, pull the trigger and get long... even at the market the next day. I think we have been in an interesting transition period the last months and weeks and have seen these beautiful patterns materialize. It's hard though to get long on a gap and feel like you're chasing the stock. The weekly pattern will come to your rescue though-generally-in quality stocks with these quality patterns. Perhaps a little less caution should be on entries and more on exits?

Don’t get me wrong, I'm still very cautious and quick to run, but it feels good to ride a few of these trains leaving the station vs watching them.

Thanks,

Steve M

US Dollar Bearish Divergence - by Didier F

Hello Kerry/Alex,

I would like to bring this comment to the attention of the group. I’m discovering trading in the middle of the crisis, my trading system (Top-Bottom) is a work in progress.

Each week, I review 56 market indicators divided in 9 groups. One of those is the currency market, including gold. That’s why this divergence in progress on the USD index has been catching my attention for weeks.

Didier F

Canada