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Monday, November 10, 2008

IBM - 111008

IBM was a textbook setup - it gapped above the previous day's high and carved out a double top in the first few hours of trading. Price fell to the 50% retracement, bounced, and then fell through that level. It pulled back to test the RZ (support becomes resistance); I entered on a break of the bearish candle with the long upper tail.

Price proceeded to fall to the previous day's low and after chopping around for an hour or so, it continued to the Fibonacci extension (FE). I covered at that level (notice the nice bounce).



TL said...

Would you consider a long on the 2 hammer-like candles right above the RZ? thanks~

Anonymous said...

nice clean trade. the 1.382% extension continues to amazing. IBM jammed right through that little congestion zone...

again, nice one!


Anonymous said...

I guess I have the same question as tl. Why wouldn't you consider going long on the bounce at 50% retracement as it printed 2 bars with long lower tails? Thks

Trader-X said...

I didn't see the action above the 50% as I was in a few other trades, so I did not have to make that decision. In retrospect, I can see the argument for entering on the first bar you reference, which was more of a doji (though not perfect) than a hammer. The second bar to me was not a valid entry because even though it had a lower tail it was not an actual hammer and appeared too over-extended to be a trigger bar.

Had I entered on the first bar I would have probably exited 5 bars later when the red bar took out the low of the previous green bar. This exit would have yielded a few dollars.

If you use MAs and plot the 34SMA, you would have been kept out of a long trade altogether. Price moved up to that level, and then reversed exactly at that point and continued back down.

I mentioned in comments of an earlier post that I would discuss MAs later this week.

David R. said...

Nice trade. I shorted IBM too but didn't get in as early as you. I got in around yesterday's low and covered at the 1.382%.

Trader-X said...

One more thing - if you look back at some of my recent charts I note the high or low of the previous day if it is not used to plot my Fibonacci lines. If you draw a horizontal line across the previous day's high on IBM, you will see that price broke through that level and if you entered a long at the bars in question, you would be running into resistance from that high on any rally...which is what happened.

TL said...

Very clearly explained indeed.

Z said...

Trader X,

How come you are shorting such high priced stocks? Wouldn't your profit be greater if shorting stocks that's priced lower (ie: $20 range)?

R.J. said...

Z, your profit would be higher given the stock moved a greater percentage. The profit you make is a function of your money management parameters IMO. Just because you are shorting a lower priced stock does not mean you have a better entry, a better stop loss margin, etc.

Just my opinion.

Trader-X said...

I don't look at the price of a stock, just the quality of the setup and the distance between my entry and stop. Sometimes lower priced stocks move a bigger %, sometimes higher priced ones do.

Also, don't think you can "load the boat" on lower priced stocks...if they are low volume and not very liquid you will get killed trying to get out of the position if it moves against you.

Dinosaur Trader said...

Thanks, this is great. Glad that you're posting again, we appreciate it.