Freedom

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How to Identify Strong Trends and Enter on Consolidation

I had noticed that the 20 period moving average seems to act as support in strong stocks on the day, and that price often consolidates sideways until it meets the 20 MA where it often bounces off and continues the next leg of its run.

From Raschke Ch. 10 The Holy Grail, I learned a method for measuring the strength of a trend and a more precise method of entry and exit using the ADX and a trailing 1-bar high buy stop.

Raschke Ch 10

FOR BUYS (SELLS ARE REVERSED)

1. A 14-period ADX must initially be greater than 30 and rising. This will

identify a strongly trending market.

 

2. Look for a retracement in price to the 20-period exponential moving average.

Usually the price retracement will be accompanied by a turndown in the ADX.

 

3. When the price touches the 20-period exponential moving average, put a buy

stop above the high of the previous bar.

 

4. Once filled, enter a protective sell stop at the newly formed swing low. Trail

the stop as profits accrue and look to exit at the most recent swing high. If you

think the market may continue its move, you might exit part of the position at

the most recent swing high and tighten stops on the balance.

 

5. If stopped out, re-enter this trade by placing a new buy stop at the original

entry price.

 

6. After a successful trade, the ADX must once again turn up above 30 before

another retracement to the moving average can be traded.

 

Investing Book Reviews and Lessons Learned

So far these books have proven to be the most helpful to me in learning how to invest and trade.  Below is a library of clickable links below and you can download from there.

 
1. Way of the Turtle
2. Market Wizards
3. Reminiscesnes of a Stock Operator

 

This was years ago, and these were great reads, fun, but more intro to what trading is like book, and gave me a good mindset for how to think about trading and what to expect books.  However, Way of the Turtle gives some good quant stuff too.

 

4. One Good Trade by Bellafiore at SMB (comes recommended by several THT guys including Nate).  Bellafiore taught me the Held Bid / Offer and how to read the tape – this really helped my level 2 understanding, and gave me by best type of trade (lowest risk and highest reward).

 

5. Mastering the Trade – John Carter (Nate’s Favorite)
It definitely helped a ton by validating certain entry / exit signals like 3 bars in a row for reversal, and he breaks down a lot of types of trades he does quickly and gives you clear systematic entries / exits.  It helped A LOT.

 

What I wanted to learn / develop –> Why I’m choosing the books I am
I wanted to improve at both tape reading and also develop a valid system that was not based on impulse or some indescribable coalesced discretion for entry and exit.  I wanted clear decisions every time.  For me, one of the most annoying things is when I ask a trader a question about how you know when to enter and exit and they say, “it depends.”  It depends is the lazy answer, and often shows a trader hasn’t written a trading plan and isn’t taking only the best trade setups and executing risk management the same every time.  I wanted to be able to code my system someday and until then be able to follow it and know that if I simply followed it to the letter, it would work.  I also wanted to get in during the morning and ride my stocks all day operating with it in the background as I find more trades, not needing to be babysit it all the time.

 

Thus the following titles appealed to me:
6. Candlestick and Pivot Point Trading Triggers – John Person
7. High Probability Trading Strategies – Robert Miner
8. Trading the 10:00 Bulls – Geoff Bysshe

 

Person – A bit too slow and I put it down rather quickly, although I would return to it bc it did seem like good info, but just a little too slow and inefficient in his writing.

 

Miner – Probably one of my favorites of all the books I’ve read.  He teaches you to combine several criteria for estimating entry and exit prices, especially dual time momentum and elliot wave pattern.  I found dual time momentum a bit too stringent and cumbersome for intraday trading (he uses it on the weekly chart compared to daily), but I did come to understand what the standard time frames were  and how to evaluate momentum a bit more.  Elliot wave pattern and his trade management system of when and where to move stops and to always enter and exit with stops has enhanced my trading probably the most.  Elliot wave patterns helped me to hold my winners longer by withstanding what were likely temporary drawdowns on pullbacks as well as provided a systematic way to know if the trend was changing.   This and that on the concept of the 2 share entry and exit 1/2 position to cover stop he agrees with Carter, and that really helped my losers turn to scratches.

 

Bysshe – This is the ORB system – I read it in 2 days since its only 70 pages.  It has been the backbone of how I find my trades and I think allows a good systematic way to find which stocks to watch.  It provides a way to get in early and taught me to trade breakouts with clear price entries.  My results became consistently profitable as a result of this system.  It is based on what the author noticed tends to happen as a stock’s price crosses its opening range (it tends to breakout).  Since opening ranges happen every day in every stock it gives you a way to find VALID trades every day.  If you don’t like breakouts, you can trade based on the consolidation after the breakout, but I choose the breakout since it gives me a systematic clear price of entry, less guesswork.  Since Opening Range is something I’ve seen in other books and a number of authors talk about it, I chose this as a focus area for now.  Also, if I can’t trade the open successfully, then I don’t see the midday bc I’ve hit my my stop so that’s the first thing to learn.  

 

So in order to gain more expertise in OR I’m reading: 

 

9. Day Trading with Short-term Price Patterns and Opening Range – Tony Crabel

 

Crabel – This is a statistical study over years of research using various patterns and their relative probability and average net gain.  The first 2 pages of reading it I was like holy shit this is like the holy grail.  He introduced new concepts such as Early Entry (when a stock has twice the size of the average first 5min bar on the open), Thrust (bars that subsequently increase in size and are the same direction), Inside Days (when the daily bar high and low are both inside the previous day’s high and low), and Narrow Range Days.  All of which tell you something about the respective probability of an ORB being successful, and how successful.

 

I am only 30 pages in and already I’ve learned a lot – haven’t applied it yet though, except to identify momentum reversals without using an indicator.  This has saved me some money already.  

 

From here, I plan to read the following:

 

10. Dark Pools – Scott Patterson (recommended by Doyle)
11. The Disciplined Trader – Mark Douglas (highly recommended by Carter and others)
12. Steve Nison – Candlestick Course 
13. Speculation a Profitable Profession – W.D. Gann (Miner mentions Gann)
These are more general types of books I have a feeling, but I’d like to get this basic knowledge.

 

I also want to learn about market timing besides fib time rets, mechanical systems (since I’ve seen a lot of things happen with 15c intervals), something on momentum, and something on arbitrage because it seems smart and low risk to me.

 

Thanks for asking, and would love to know your reading list as well,
RJ

Trading Price Levels and Held Bids and Offers (HBs) (KORS)

Positions_11

HiGPS was over 1.50 on KORS, the VPN lost connection again so my execution and GPS numbers vanished.

Trade_results_11

Summary 
KORS – HB held offer, loaded 5 short, it broke, came back down, got back in 10 short, and it went (used 3c stop)
BBBY – CE with trend on pullback, good risk mgmt 
AGNC – EECE – used a NITE entry short when I should have set a stop one bar lower
CELG – MO – lost more than intended on typo error – was trying to add a share and it took out my stop and I added it late
GBX – ORB – failed to hit out when it consolidated back inside OR

Best Trade – KORS
I saw a level at 52.00 between 10:40 and 11:00, and upped my shares well.  I exited half position on first burst, but the burst was enough to cover my stops even if I had only exited 1 share.  This being the case, and my goal was to remove risk.  I should have held more of the position and put a stop in on the other 4 shares 3c away.  I continued to exit using NITE until I ran out of shares and missed a good deal of the down move (my last exit was 15c), but had closed almost 2 bucks on it.  It just kept going down and I waited and watched it, not reentering any more shorts. 

Since it had shown a powerful open on positive earnings release today, I figured the flip back to bullish was worth trying.  I waited for it to break a 1BH and form a symmetrical bottom at 11:22.   

Hb_kors_3

The chart as I watched it showed it flickering down from 50.50, so I thought that would be the top if it was going south more.  I was bearish below 50c and bullish above.  Since it had already moved south so far and for the reasons I mentioned earlier, I entered a buy stop order at 51c and it took me in after maybe 15 to 20 seconds of flickering and 50c holding (both good signs).  It shot to 60c on its first push past 51c. 

I immediately entered my stop at 51c so I wouldn't lose trying to catch a falling knife.  It took out my stop quickly, and went to 30c, came back up quickly and went to 60c again and then back to 55 where it seemed to be hold for a few seconds.  This delay at 55 told me to take 55c and put my stop at 50c again, and it never hit 50c again.

Lesson learned:
On both sides of the KORS trades my stops were taken out and I had to be aggressive at putting the same order back in when the prints and tape told me it was still right to do.  I know my stops and entries were the right ones even tho they were taken out.  It was simply correct to reenter them.  

*By doing this I kept my capital exposure low on a volatile and rangey stock that paid me well on being right.
Furthermore my stops were not mechanical.  They represented breaks of an important price point and my stance was bearish below it, and bullish above it, and I would have kept re-entering the corresponding orders as needed.

Trading Books to Read

W.D.Gann – Speculation a Profitable Profession. A Course of Instructions on Stocks. Volume 1

Van Tharp – Trade Your Way to Financial Freedom

Tomas Bjoerk – Arbitrage Theory in Continuous Time

Tom Joseph – A Mechanical Trading System

Toby Crabel – Day Trading with Short Term Price Patterns and Opening Range Breakout

Thomas DeMark – New Market Timing Techniques

Steve Nison – Beyond Candlesticks. Full

Steve Nison – The Candlestick Course

Steve Nison – Beyond Candlesticks New Japanese Charting Techniques Revealed (Wiley Finance)

Robert Miner – High Probability Trading Strategies

Mark Douglas – The Disciplined Trader

Leslie Masonson – All About Market Timing

Ken Wolff – Trading on Momentum. Advanced Techniques for High Percentage Day Trading

Geoff Bysshe – Trading the 10 O’clock Bulls. Winning Strategies for Active Traders

John Person – Candlestick and Pivot Point Trading Triggers

Jeff Cooper – Intra-Day Trading Strategies. Proven Steps to Short-Term Trading Profits

Cynthia Kase – Trading With The Odds

David Stendahl – Money Management Strategies for Serious Traders