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Monday, August 01, 2011

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."



Gene said...

Sweet! One correction, I was using the 8 not the 5EMA. Thanks X, you are an inspiration!

timo4sho said...

Yes ... indeed a very nice example.

For me the main obstacle still remains the intraday screening process to make sure to have the stockchart up when the setup forms.

How do y'all make sure you are watching the right stocks at the right time?



Klaorman said...

Congrats, Gene! I passed on the same trade; see below. When SOHU reached the FE, I said to myself, “Wow, I missed out on $4!”

8/1/11 Non-trades

I missed everything today, mostly by doubting that what I was seeing were true setups. This was a natural reaction to my bad day on Friday, 7/29, even though I wasn’t consciously thinking of that day while I was evaluating the setups. Every setup I saw was successful, as opposed to Friday, when every trade I took stopped me out. If I had taken every trade today, I would’ve made up Friday’s losses at least 5x over.

SOHU 6th 5m bar short
This was a green shooting star at the 5ema and 38 fib, but the 2 bars at the bottom had long lower tails and the stop was about a buck. Also, I’ve always thought that this stock was volatile and sometimes spready, so I passed on it, even though I knew it had a reasonable setup and I had a “feeling” that the trade would probably work. It hit the ORL in 2 bars, retraced to S2 (showing the volatility that I had surmised), and then trended down all day to the FE and beyond. New catchphrase: “To FE and Beyond!”

That was a great hold, Gene. Even though my current plan includes partialing at the ORL (or ORH) and then holding for the FE (which I don’t actually do since I move stops to lower highs or higher lows), I don’t think I could’ve held the bounce from the ORL to S2. Did it take a lot for you to hold through that or is it just routine for you?

OHI 2nd 15m bar short
This was a pseudo fill-the-tail setup that had me salivating, but since the market dropped quickly after the 10am numbers came out, I hesitated, thinking that it was time for the market to bounce. It did bounce a bit, but OHI didn’t. This was another case of a stock doing what it will and ignoring the market. I have to do the same at times. OHI almost made it to the FE, bouncing at whole number 17. I probably would’ve covered near there if I was in the trade.

SPY 11th 5m bar short
And speaking of the market, the SPY presented a Trader-X pullback: A shooting star at the 5ema and under the 38 fib. I didn’t take it, somehow thinking that market trades are usually slow and congested; that was flawed thinking since the initial drop was just relentlessly straight down. The path after the setup bar wasn’t straight down, but the SPY still made it beyond the ORL.

Next comment...

Klaorman said...

MAN 11th 5m bar short
Here comes a series of setups which I thought were doubtful at the time. MAN’s setup bar was a shooting star at the falling 8ema, but it wasn’t quite near the 38 fib. I wondered if this was a valid setup. I don’t remember if had actually seen the bar in time to get a good entry, but I definitely saw it during the next bar. I passed, and the stock trended nicely to the FE (and S2, so here would’ve been a great spot to cover).

AGP 12th 5m bar short
This shooting star at the falling 8ema was even farther away from the 38 fib, but again it hit the FE and beyond.

HCA 12th 5m bar short
Broken record, anyone? This red bar was at the falling 8ema and not quite near the 38 fib. The stock dropped the quickest to the 162 fib and beyond. It also had a beyond the FE setup, basing there before dropping again. I had told myself to watch for this setup, but then I didn’t set an alert at the trigger point.

From these 3 examples it seems that the EMA is more important than the fibs for determining a good setup, at least for today. From your looks at thousands of charts, Trader-X, do you find this to be true? Of course, if the setup bar is at an EMA and a fib, then that makes the setup that much stronger (well, except on Friday).

HCN 6th 15m bar short
I saw this setup way too late, but if I ignored the initial huge tail and drew fibs from the ORH to the 4th bar’s low, the shooting star setup bar would be at the 38 fib and the 5ema. The stock bounced at the 4th bar’s low before going down a bit more. I found it interesting that the FE was exactly at the first bar’s low.

Gene said...

tim, I use the same screening X does. In Real Tick, I take the gap lists and consolidate them and then focus on the top 20 or so by volume, and constantly scroll through looking for setups.

Thanks guys.

Chips and Salsa said...


LOW, 15m, 5ema, Fibs OR, short below bar 6, never reached the FE, stopping around whole number of $21, net 1R profit.

LEG, same criteria, short below bar 4, similar result.

Grove Under said...

Gene, nice trade!

* * * * *
I'm not trading this week, since I'm busy reviewing the past 4 months of trading so that I can evaluate my strengths in greater detail, which should result in a better trading plan.

One interesting observation is that back in late March, I used to trade the 2 minute charts during the opening range. I was influenced by Trader-X's posts back in October 2010 when he started explaining how a chart is a chart, and how he now focuses primarily on the 2 minute charts.

I was probably too inexperienced back then (and still am now), but I can now better see why I should not have taken some of the trades that I did. On the plus side, I did see many decent setups AND executed some of them relatively well. Can't learn unless you try, and learn, and re-try, and learn...

* * * * *
Since I'm still keeping one eye on the market this week, here's an interesting setup from yesterday (8/1) that should look familiar to regular readers:


Would you have taken this trade?

It's not the best setup (maybe B- or C+ for me), but it's likely one I would have taken.

Here's the result:

Assuming you took the conservative exit and exited at the ORL, it ended up having about a 2:1 reward:risk ratio. Not great, but not bad.

And yes, the chart is a 2 minute chart, but I'm sure you've seen something similar on a 5 or 15.

* FNFG - 2 min, short below 7th bar setup
* Fibs over morning swing (first 3 bars), 5ema (the fibs from prior close to current open didn't work in this case)
* Sell at ORL / and if holding 2nd half, exit once retest of ORL failed around 10:30

Anonymous said...

Grove, I hate that the 5th bar is so strong. But, if you add the pros and cons, I think the fact that it runs into resistance from the declining MAs and the retracement zone makes it a setup worth the risk. That is, of course, if there aren't better setups to take.


David said...

Mike, can you elaborate on "if there aren't better setups to take"? Many thanks if you can.

Anonymous said...

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.


Jay said...


I think your "MAN 11th 5m bar short" is an almost perfect setup. The setup bar is inside the previous bar and it is the narrowest range bar of the day. The two green bars before it had upper wicks, which show weakness. And the setup bar touches one of your MAs. I believe X once said that he prefers setups to be above the RZ, which would be below the RZ for a short. So, what is not to like about that trade?

Klaorman said...


Thanks for your analysis. There was nothing not to like about MAN. It’s just that most of the time I’ve been looking for setups at the 38 or 50 fibs and this one (and AGP and HCA) confused me by looking good shy of those fibs. It seemed like it hadn’t pulled back “enough.” Thanks for reminding me that Trader-X said that he prefers setups to be above (below) the RZ. Also, as I had mentioned, I think I saw it a bit late, so I had to consider whether to chase it or not.

8/2/11 trades

Today I had the opposite hesitation problem on a beautiful setup:

PCS 4th 5m bar short
This was a nice shooting star near the 38 fib (check), but not near the falling 5ema (hmmmm). I had plenty of time to get in, though the circuit breaker was on so I probably would’ve had to chase it some, but I just couldn’t get over the fact that the 5ema was so far away. The stock almost hit the 200 extension in 3 bars and then retraced to the FE, which served as resistance for almost 3 hours. The beyond the FE setup occurred when the stock hit the 8ema/15m and 5ema/30m, from which it finally did hit the 200 extension. I half-told myself to watch for a fall from the FE, but again as with HCA yesterday I failed to set an alert.

This was actually a missed trade; here are my trades:

SPLS 7th 5m bar
This was a NR bar at the 8ema and 50 fib, but it stopped out quickly. It wasn’t a gapper, but the MAN, AGP, and HCA successes from yesterday weren’t gappers either. All of my longs didn’t work on this down day. Can anyone see a reason not to take this trade?

SOHU 7th 5m bar
Was this a revenge trade for missing yesterday’s great short?? I don’t think so! I saw the setup and took it. Yes, the long upper tail on the 2nd bar was a concern, but yesterday’s short had 2 lower tails. The setup bar was also deeper, at the 62 fib, but it looked good at the rising 5ema. It went for about a buck but then started coming down fast. I was holding for at least the ORH, so I was OK with that, but it came all the way back down and stopped out. It did hitch a bit around breakeven, so I could’ve put my stop under there, but it seems that most every time I try to find an excuse to get out of a trade early, the trade then goes in the right direction, so I held.

DEPO 11th 5m bar short
This was a shooting star at the 8ema, but slightly above the 38 fib. It didn’t go too far, but I still got a few cents out of it at EOD.

ATHN 5th 15m bar
This was a hammer at the 5ema and 38 fib. It looked ideal to me, even with the upper tails on the 2nd and 3rd bars, but it failed.

AMX 8th 10m bar short
This was a green shooting star at the 5ema, but about halfway between the ORL and the 38 fib. I sucked it up and took the trade. The stock hit the ORL nicely, where I partialed. My plan was to hold for the FE, keeping my original stop. However, the stock created a bit of a symmetrical triangle on the 1m, and when that broke upward, I bailed. It never hit my original stop, even after forming an ascending triangle, and finally hit a bit beyond the ORL at EOD. There you go: I found/manufactured a way to get out early and then paid for it with less profit. I will have to try not to do this from now on!

Klaorman said...

ECPG 8th 10m bar short
This was a green shooting star at the 8ema and slightly above the 38 fib. It also had a long lower tail on the 3rd bar. It didn’t do much for the rest of the day.

UAM 8th 15m bar
This was a narrow green bar at the 8ema and near the 38 fib. It struggled and then stopped out.

NUS 8th 15m bar
This was a hammer at the 5ema with its tail nearly touching the 38 fib. It stopped out before nearly hitting the ORH.

Yes, I took a lot of trades today, but was it overtrading? I’m not sure; all the setups looked ideal or reasonable, so I took them.

Missed trades

Besides PCS above, I missed these other trades:

OSG 4th 5m bar short
I saw this narrow hanging man-like bar at the 38 fib, but not quite near the 5ema. I didn’t have any shares available for the short though; it would’ve stopped out anyway.

SNCR 10th 5m bar
I actually saw the 8th bar doji at the 5ema and 38 fib first, but this red hammer setup bar was even better. However, when the bar triggered, the stock had already jumped up .30, so I passed. The stock hit the ORH and then struggled there for the rest of the day. It would’ve been nice, though.

ATPG 12th 15m bar short
I saw this shooting star at the 8ema and 38 fib too late, at around 13.10. The stock hit the ORL at EOD.