How bad do you want it?

Next Monday is a market holiday, so posting will be scarce for me this week as I take some personal time ahead of the three day weekend. I encourage you guys to use this week to maybe not trade as much as usual, and instead study and work on focus and discipline. Just a thought.

Here is a motivating video - I don't agree with the "no sleep" philosophy, but the overall message is powerful and should get you charged up.

How Bad Do You Want It from Greyskale Multimedia on Vimeo.

I will check comments periodically for compelling trades to post on the blog. Have a good week!

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It's Friday!

As mentioned last weekend, I haven't made a lot of posts in the past few weeks due to other priorities monopolizing my time. Readers are making some great comments - I encourage everyone to read them. Recent topics include pivot points, watchlists, some trade analysis, and some tension. I am behind on all the comments myself, and hope to catch up this weekend.

I saw this cartoon and it was funny and sad at the same time. Luckily for my "buy and hold", 401K friends and family, we gained some back this week. Of course, that could all change today!



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TIN - 082311

The Dow is up 3%, the NASDAQ is up 4%, and one of my best trades of the day is a short. No analysis, I think you guys can figure it out. There was also a nice "beyond the Fibonacci extension" setup that I did not take.



There are some great comments on the previous few posts - if you aren't reading them, you should be.

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Comments worth highlighting

I didn't have a lot of time to post last week, and this week will probably be the same. But, I'll try to put up some more charts this week. In the meantime, Ken made a few good comments over the last few posts that I thought were worth sharing.

"How do you look at so many different timeframes? I am not trying to be confrontational, but I think your success would go up if you picked one and focused on it. I honestly don't think you can be successful looking at 2, 5, 10, 15, 30, etc. You might get lucky now and then, but I think consistent success is impossible.

I see a lot of you guys posting here, but you aren't really following the Trader-X methods. There is a high number of trades and a lack of real focus on what a good setup is, and when you execute you need to have the ability to monitor your positions and adjust accordingly. Thus, fewer and better trades. If you get down to analyzing a setup and studying the price action and bars like you should, you can't have a watchlist of 200 stocks and trade 5 timeframes. It just doesn't work that way.

Again, I am not trying to be confrontational, but I see you guys doing the same thing over and over and hoping for a different outcome that won't happen. Focus, discipline...it pays off. I have not had an unprofitable week since 2010. I have an unprofitable day every now and then, but never an unprofitable week.

Good luck."

And, on being asked about his trading:

"Grove, I really only trade about three setups. I only look at the 5-minute timeframe, and use a 5EMA. I don't trade exactly like X, but I use the same principles. I focus more on plotting Fib lines over bigger moves which may or may not happen at the opening range. I am looking for a failure through the retracement zone or a nice bounce off of the top of it, with solid support form the 5EMA. I like the 5EMA to be right under price lifting it (or vice versa for a short). I probably put more emphasis on the 5EMA than most readers or X himself.

I have been making solid profits consistently for almost five years, and dabbled in trading for about ten before that but not as a full-time venture.

For me it is about discipline to only take good setups and about focus to only look at a small, defined watchlist and monitor what I am doing closely. And I don't trade a lot, though it is relative. On average I probably make 3 round-trip trades a day. Hope that helps."

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GILD - 081611 (from comments)

In comments of the last post, t-money asked:

"Trader X,

I was watching GILD today (8/16) on the 5 minute chart and was wondering if this was a setup that you would have considered?

It did not have a gap, but did shoot up over yesterday's high right away in the morning. I was looking to enter on either the 5th or 6th bar, but didn't consider either strong enough to take.

The stock took off immediately after those bars without me. Is this a good candidate, or not convincing enough even though it worked out?

Thanks"

Mike offered up his opinion:

"t-money, I traded GILD today. I trade based on X's textbook setup, of which GILD was perfect as it bounced off the retracement zone and had support from the 5EMA. But, I don't trade gaps exclusively. I scan for stocks that move up or down in the first few bars, and then pullback to the rz. GILD had a nice move up in the first two bars, and a perfect pullback and reversal.

Mike"

As for me, if I looked at non-gappers, I suspect this would have been a setup that I liked for the same reasons Mike pointed out above. Good trade!



note - I indicated the trigger bar that I assume Mike used for his trade, although he didn't specify. Also, I assume he exited at the Fibonacci extension (FE).

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Promoted from comments

In response to my NWS post, Ken asked the following question:

"Nice rationale X. I took a similar sub-par setup with ERTS. It didn't quite make it to the extension, but I closed it at a profit. Would you rate this the same as NWS, or worse/better?"

Here is Ken't ERTS chart, and my response to his question:



"Ken, ERTS was very similar to NWS. The biggest difference I see was the size of the gap - NWS was a bigger gap, and outside the previous day's range. ERTS was a little smaller and inside the previous day's range. So, I might give it a C+ whereas I gave NWS a B-.

On the bright side, you made money and price never stopped you out (I am assuming your stop was the low of the hammer bar (fifth bar)). It reached the initial target of the opening range high (ORH), so the setup in a sense still worked."

Throughout the years, I have harped on watching the opening range high/low for resistance as price is moving back in that direction after a pullback. I haven't mentioned it lately, but ERTS provides an opportunity to revisit why it is important. Ken exited with a profit because he paid attention to that level, and while everyone wants their setup to move to the Fibonacci extension (or beyond), sometimes price stalls out...especially when the setup is somewhat "inferior" to begin with (ie, a setup that receives a grade of "C" vs. an "A"!).

The ability to pay close attention after you enter a trade (ie, monitor your positions) is one reason I try to focus on taking fewer high-quality setups versus more mediocre setups; the end result is a higher win rate and the ability to make money even when a setup doesn't reach the target.

On another note, I have read a lot of comments lately about people having too many options to choose from, or too many stocks on their watchlist. This can be easily remedied - sort your watchlist by current volume and focus on the top 10 or 20 at the most. By focusing on fewer stocks, you will be less overwhelmed and (hopefully) be able to make better quality decisions.

I hope everyone is geared up for another crazy week - be safe!

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Watching the markets

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NWS - 081111

I would give this setup a "B-" because of a few factors:

1.) The long upper tail on the second bar.
2.) The pullback broke below the 50% retracement.

Having said that, I liked the fact that the move up and pullback were orderly, I liked the offsetting bars (bars five and six) that immediately brought price back above the 50% retracement, and I liked the support from the rising 5EMA. I entered on a break of the seventh bar's high (fully acknowledging the increased risk of a "B-" setup) - I chose this entry as opposed to a break of the sixth bar's high because it was more bullish for price to close back above the retracement zone (RZ).

The force was with me, and I exited the position less than an hour later at the Fibonacci extension (FE).

It has been a wild and volatile week, and I am anxious to see how it ends up tomorrow.



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GG - 080811

Mike commented on trading gold stocks today, and several of you chimed in with similar trades (see comments on the previous post). I traded GG and several similar setups as well. While I disagree with "going into the trading day with a bias", I can't argue with the results. Well done!

"I went in with a Tom C. "u-turn" bias and it paid off with gold stocks. GG was my big winner - entered at $47.45 (break of 10:45 bar, 5-minute chart) and exited at the fib extension just above $48. Entered again on a break of the 11:20 bar at $48.31 which to me was a perfect "beyond the fib extension" setup, sold at $49. NEM and several other gold stocks offered similar setups. I am taking the rest of the day off!"

"FYI, 5-minute charts on the previous comment and Fibs plotted over the first 6 bars on GG. Using the 5EMA for extra support, and GG's first setup happened above the 61.8% retracement of the morning's high to low (as it formed the "u-turn")."

Here is Mike's GG chart with the two entries marked (the exit for the first entry was the Fibonacci extension, the exit for the second entry was the black dashed line).



I'm done for the day - be careful out there!

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Who is to blame?

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Just in...and you thought today was volatile

The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday, in a dramatic reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

source

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Look out below!

The markets posted the biggest declines since June of last year. I feel bad for the people with 401Ks, but the market offered traders a lot of profitable opportunities.

I don't have time to post charts, but here are three setups that are in-line with the previous two I posted this week. All are 5-minute charts, with Fibonacci lines plotted over the morning's opening range and my standard EMAs:

WLT - break of the 7th bar's low, covered at the Fibonacci extension (FE)...it didn't reach the target until the afternoon, but it was worth the wait.
MCP - break of the 7th bar's low, covered at the FE.
VMW - break of the 8th bar's low, covered at the FE.

We'll see what tomorrow holds.

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BRKR - 080311

This is similar to Gene's trade from Monday, but the signal bar (trigger bar) was better defined (or, a more valid signal). Entry was a break of the trigger bar's low, exit was the Fibonacci extension of the opening range's high/low.



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Comment gold

Mike wrote this comment in response to a question from David (see comments on the last post):

"David, one thing I have learned from X and others is to only take the best setups. My spin on this is as follows:

1.) Try to disqualify setups - eliminate them if they do not fall into my definition of "textbook".
2.) Of those that remain, rank them (usually a pros vs. cons for each setup) and take the top ranked setups.

This may seem like a time consuming task, but I can literally size up a setup in a few seconds. That is where the practice comes in - you have to train yourself to scroll through your watchlist, throw out the bad, rank the remaining, and make your trades. If you practice you can do that in a short time (seconds to minutes).

X wrote once that the job of a trader is to weed through the setups every day and throw out the bad ones, and then pick the best from the remaining good ones. Or something like that. Once you subscribe to that mindset, you start making better trades. Hope that helps."

I could not have said it better myself. And, here is the post that Mike referred to above.

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Promoted from comments

From Gene, posted in comments...a solid short trade from today:

"SOHU was a nice short today off a break of the 6th bar low. I would have liked for that bar to be red, but it left an upper tail at resistance from the 8EMA and the 38.2% retracement of the opening range. I held it until it reached the Fibonacci extension, which was most of the day. But it was a big winner for me and a great way to start the week."

"Oh, 5-minute chart. And this to me is like the classic X setup but short instead of long - gap, pullback to retracement zone, then move to the Fibonacci extension."



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