How I improved my trading in 2009

Posted by Tom C.

2009 has been a good year for me, but it has been made better by a small tweak I made a few months ago. Many of you may already do this, as it is not a "hidden secret". But I have never incorporated it into my trading on a consistent basis.

What am I talking about?

Watching the whole dollar level (and to a lesser extent the .50 level) for support and resistance. Many times price will move towards my target but stop just shy of it. A few months ago I started plotting a dotted line at the whole dollar level and the .50 level, and a majority of time they are responsible for price turning. I also use these levels as an additional filter for entering trades: if I have two setups that are equal, but one has me entering a stock at $25.89 and one has me entering a stock at $30.10, I will take the latter setup because I realize the higher risk with the former - price could turn at resistance from $26.00.

Simple, yes. And as I said above, many of you may already watch these levels. But if you don't, I highly recommend it.

In regards to my post at the beginning of September on the big picture, not much has changed. Price is still climbing through the retracement zone (RZ), and there is no clear indication on direction for the remainder of 2009.

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Looking at the markets

Posted by Tom C.

Just a quick post to remind you to keep an eye on the big picture. If you look at QQQ (weekly chart below), you will see that we are at the 50.0% retracement from the 2007 high to the 2008 low. Price is bouncing around this level and I don't have any predictions, but I will be watching to see what happens as it could set the direction for the rest of 2009.




SPY is actually at the 38.2% retracement from the 2007 high to the low set earlier this year.




As we get to the Fall and things slow down for me, I will try to post more charts. I hope everyone had a great summer.

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State of the "X"

This post has been a few weeks coming - sorry for the delay.

I mentioned in June that I was doing some consulting work and part of my agreement is that I don't post charts and technical analysis on public forums until the end of the engagement. That consulting work has turned into a business opportunity and I am going to join a small group of talented traders and [hopefully] increase my earnings drastically. What's in it for me as an already successful trader? Access to a lot more equity than I currently trade with, and a few great minds who can crunch numbers and test a lot of my theories and practices across many markets and many instruments. And since most of you know my ultimate goal is to travel the world and only work an hour or so a day, this will accelerate what I want to have in place before I embark on that lifestyle of fun and adventure.

I have been in talks with Tom C. to take over the blog completely, but as any of my fellow bloggers will tell you it can be a time-consuming and sometimes thankless job. Of course, there are many positives too - like getting to know, interact, and exchange ideas with some great people (yes, you). And getting a good warm feeling that you might post something every now and then that benefits someone.

Tom C. is still undecided, but has agreed to continue posting a few charts now and then until he makes a decision one way or the other. He has been absent because of some health issues in his family, but as time permits he will be back. And maybe he will decide to take the plunge and do it more often - only time will tell.

As for me, I am still prohibited from posting charts and technical analysis on public forums until the end of the engagement. I can make other posts pertaining to non-trading subjects, and I know how much you all love my political views and witty sense of humor...so I may make a post periodically. But until the end of my agreement, you will not see any charts or analysis from me.

So stay tuned. Add the blog to your reader or subscribe via email (links at the top of the page) and you will be notified when Tom or myself makes a new post. Until then, I wish everyone all the best!

PS - if you are new to the blog, there are 3+ years worth of charts and posts that have a lot to offer...just click the "THE TRADER-X ARCHIVES" box on the right.

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Is the year really half over?

2009 is flying by. I have received a few emails asking if the Trader-X blog is dead. I hope not, but there are many things going on in my life and while I would love to have Tom C. post more often, it is not a priority for him. I can't say I blame him, as he doesn't get paid much ($0), and it can be a thankless job.

In my defense, I did send him a nice birthday e-card!

I will try to bring everyone up to speed on what I have been doing, Tom C., and the future of Trader-X. My goal is to get a post up by week's end. In the meantime, I have faith that Tom C. will post a few charts before then!

But, I have been wrong before.

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Tom C. - present and accounted for...

Posted by Tom C.

No, I did not attend Michael Jackson's funeral. But I did enjoy a great vacation. I am back and will continue making a few posts a week. I have to leave early today, so most likely you will not see anything from me until late tonight or tomorrow. I know there are probably comments I need to address too, and I will try to get to them over the next few days.

One of my goals that has been on my list for several months was to write my "Five Rules for Life". Readers of this site have most likely visited that site, and many have contributed their rules. I found it a useful exercise, and it led me to do some reflection and "soul-searching". You can read mine here, and do a search on the five rules site to read Trader-X's.

Five Rules For Life

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Trader-X update

Tom C. is M.I.A. after his vacation week. Actually, rumor has it he is in LA for Michael Jackson's funeral.

A lot has happened over the past week - several celebrity deaths, Sarah Palin quits her job, fireworks. Madness.

I hope to return next week. Maybe Tom C. will post a chart or two this week. In the meantime, I ran across this article and thought I would share it:

HALL OF SHAME: 12 OF THE WORST FINANCIAL GURUS

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RunPee for the iPhone

No charts this week, but where can you find REALLY useful stuff like this besides the Trader-X blog?

RunPee solves the age-old problem of having a small bladder, drinking too much Coke, and sitting in a movie theater watching a really good movie. You need to know when there is a boring scene so you can go...pee.

Creator Dan Florio:

"Our iPhone app gives movie goers “immunity” from the effects of mega-sized sodas and flushes away those grueling post-movie restroom lines where you have to wait your turn in pain and avoid awkward eye contact with the 30 other people in the restroom with you….a bladder is a terrible thing to hold."

Here is Mashable's coverage and a link to the iTunes store.



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Happy 4th of July America

Tom C. should be back next week, and I will return sometime in July.

In the meantime, I ran across this video...hot women teaching technical analysis. This has to signal some kind of bottom. Or top. Or something.



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WR - 062509

Posted by Tom C.

I am fortunate that the first six months have been very profitable, so it allows me to take some time off. I took yesterday off, and because next week is a short trading week (due to the July 4th holiday), I will be taking a few extra days off.

Here is a trade that is a little different for the weekend. Trader-X often talks of my "u-turn" setup. One thing I look for is a gap above the previous day's high and a move back down to that high where price establishes support. It doesn't always happen, but when it does it is a great setup. As you can see from Chart 1, the 4th bar is a "hammer-type" candle and the 7th bar is a strong candle that rallies off the 8EMA (and both bars find support from the previous day's high - the black horizontal line).

I entered on a break of the 7th bar high and held the stock until late in the day. It rallied nicely, and made a run at the morning high but stalled out at the halfway point between the 50% level and that high (Fibonacci lines plotted from the morning high to low). I sold at $9.08 as price rolled over from the second attempt to break away from the halfway point (top yellow arrow, 2nd chart).





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Trader-X update

Many thanks to Tom C. for great posts, comments, and overall content! I plan to return sometimes in July, and I hope Tom C. sticks around as a regular contributor.

I wanted to drop in and point everyone to "Five Rules For Life" - Jon made a new compilation post and I think you will enjoy reading it and all of the other submissions on the site (scroll down to read the compilation post).

It is a great source for motivation and reflection, and many traders have contributed!

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A few short trades

Posted by Tom C.

I rarely go into the trading day with a bias - and I don't recommend it - but I admit I was looking for shorts from the open and was more aggressive on the short side today. So both of these setups were riskier than my usual trades.

I took BA after it formed multiple narrow-range bars, culminating with a NR5 and an inside bar. I entered on a break of the 5th bar low, and closed the position at the halfway point between the low and the FE (Fibonacci lines plotted in the traditional X style - the previous day's high to the ORL).



RMBS gapped down and printed two weak bars. It made a textbook pullback before resuming the downtrend. I entered on a break of the 6th bar low (the 6th bar was weak and left a long upper tail). I was holding for the halfway point between the low and the FE...price never reached that level and I closed the position at the end of the day.



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How do you determine the OR high?

Posted by Tom C.

We discussed this in "Comments" of the previous post, but I thought it deserved a post of its own. And even though we are talking about the opening range high (ORH), it also applies to the ORL.

There are two ways you can determine the ORH:

1.) A fixed timeframe - ie, the ORH is the high of the first 30-minutes regardless of any other factors.
2.) The first pivot high, regardless of the time.

The way I determine the ORH 99% of the time is the first pivot. But I don't use pivot the way most define a pivot; to me, a pivot can also be a pause as was the case on Friday's KMX chart. It made sense to me to draw the ORH at that level because there was a wide-range first bar, and then a pause with the second bar (a narrow-range, inside bar with no new high made).

The bottom line is you have to find the ORH that makes the most sense for the chart*.

A few more points to consider:

1.) In 10 and 15-minute charts - a majority of the time - the ORH works out to the first 30-minutes, as that is when a morning reversal tends to happen (not always, but usually). That is why you will hear some of us say "the high of the first 30-minutes" even though we are looking at a pivot for the ORH.
2.) When you are using faster timeframes, a reversal will (usually) occur faster - thus the ORH may happen in the first 15-20 minutes.

So unless you are using a set timeframe (ie, 30 minutes), your reversal is likely to vary.

As always, this is how I trade; my way is not necessarily the right way for everyone.

*Another thing I do sometimes is to draw horizontal lines across more than one possible ORH and watch them to see if they trigger a valid setup. In my experience, it pays to be flexible (within the parameters of your overall rules/strategy, of course).

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KMX - 061909

Posted by Tom C.

It has been a light week posting as I took yesterday off.

People often ask what setups I trade on a 5-minute chart. The answer is simple - the same ones I trade on a 10-minute chart.

Here is KMX from today. The setup is the same as I referenced a few weeks ago (my "bread and butter" setup).

1.) Gap up.
2.) Price breaks the opening range high (ORH).
3.) Price pulls back to the ORH with support from a rising moving average.
4.) Price rallies to the Fibonacci extension (FE).

KMX was not perfect, as I prefer setups that do not penetrate the ORH or the 8EMA. But it was compelling because it formed "offsetting bars" and closed below those levels but immediately reversed to close back above them. Note that I used the 1st bar high as the ORH because the 2nd bar was a narrow-range, inside bar that signaled a pause after the initial wide-range 1st bar. It would not have made sense to use the third or any other bar as the ORH. I sold at the FE.



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RIG - 061609

Posted by Tom C.

Following my prescient post on the general markets Monday, the markets sold off.

: )

You could throw a rock and find good shorts yesterday and today. One of my better trades was RIG. It gapped up and fell to the 50% retracement from the previous day's low to the OR high. It bounced and then rolled over and fell back below that level. Price formed a "hanging man" type candle, and I shorted on a break of that bar's low. I covered the short at the previous day's low.



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The Markets

Posted by Tom C.

I don't use the following data to make any trading decisions, I just like to look at where the markets are since we are approaching the halfway point in 2009.

I am framing the price action in terms of last year's high/low (as I do with my swing trades*). Here is a quick summary (note I am using QQQQ, SPY, and DIA as proxies for their respective indices):

QQQQ - approaching the 50% retracement of 2008's high to low. If I were a guessing man, I would say that level is going to be formidable resistance. It could set the tone for the rest of the year - ie, if price reverses we could retest the lows...which at this point seems a long way down as we have rallied substantially since March. If it breaks through the 50% retracement and finds support (resistance becomes support), it could set us up for a nice rally into 2010.

Of course, this is all just speculation. Again, I don't trade the broader markets.

SPY - it has not come as far as QQQQ; it recently crossed the halfway point between 2008's low and the 50% retracement of 2008's high to low.

DIA - the laggard; it is just approaching the halfway point between 2008's low and the 50% retracement of 2008's high to low.

The only thing this really tells us is that the markets are all close to solid resistance. Depending on whether you are a "glass half full" or "glass half empty" kind of person, it is a great opportunity or the return of our decline into Armageddon!







*credit to TRADEthemove.com

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