Yesterday I made a few trades in the morning that didn’t quite work out.  It was looking like it might be a pretty crappy trading day, however, I managed to catch the trend trade that formed in JDSU, and by focusing on that trade, managed to turn the day into a rather profitable day trading endeavor.

1 Minute JDSU Chart - Entires and exits marked and annotated

As I said, the early morning was pretty rough.  I had a couple quick winning scalps, but also took some losses in a couple other stocks which all added up to about .8 of my daily risk limit (R) and the day had barely started.  I got chopped up pretty bad in AIG, which was my biggest loss of the day.  I did, however, finally catch some winners that I was going to ride for a bit.  By the time I started focusing on JDSU, I was just about breaking even on the day (including my unrealized gains).

At about 10-10:15, I realized that JDSU was looking ripe for a nice trend trade, or a trade-to-hold.  My other stocks weren’t looking nearly as pretty, and I decided to really hammer this trade for maximum profits.  I entered some auto-stops on the other 2 positions, checking in, and shifting the stops as appropriate.  I then got to work on JDSU, expecting to add into strength as it went up.

After an initial late entry, followed by an auto-stop at breakeven, I jumped in at the next show of strength with a full position.  I set my stop as indicated in the pic above (behind the last support point), and let it ride.

Then, I got screwed by outside distractions, which really proves that trading is best done in a distraction-free environment.  I could have added two more full positions during this time, which would have significantly increased my gains.

I added 4 more times.  Every time this stock took a break, and then began to show strength again, I was back in, trading the trend.  I would keep the stop for the newly entered position fairly tight (last support point), while trailing the stop for the rest of the positions a bit looser.  You can see I entered the 5th position a bit later, and there appears to be an entry point if you’re only looking at the chart.  The tape wasn’t really showing strength here though, but it wasn’t showing weakness either – no reason to enter a new position, but no reason to exit the rest either.  After a few minutes of consolidation, in a nice little pendant pattern (which is a continuation pattern) it looked like some strength was reentering the stock.  That wasn’t the case though, and the price quickly broke down out of the pattern.  I exited that 5th position rather quickly.  A couple minutes later, as the tape and pattern began to look really weak, I exited the rest of the position.

Trend Trading JDSU - 5 Minute Chart

The stock ended up double-topping, and retracing a bit of the day’s gains.  I missed the double top entry because I don’t tend to enter new trades during the noon hour.  I tried to catch a piece a bit later, and took a loss.  I tried to short a second time, and grabbed a small gain.

Overall, the day turned out to be pretty profitable because I recognized how this stock was trading, and knew I could hammer it for some decent gains.  I also didn’t let my early losses get me down.  I can’t say I’m a robot, and trade entirely without emotion, but I realize that losing is part of the process, and I don’t let it affect my judgement or trading ability.  Anyway, I ended the day at about 3.8R (daily risk limit) – not too shabby.

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I discussed the standard opening range breakout in my last post.  Now I want to talk about a variation of the Opening Range Breakout . It’s called the Opening Gap Reversal.  It’s just another of the many useful setups for day trading online that you can add to your arsenal.

The Play

The chart above shows the opening range reversal that occurred when First Solar (FSLR) failed to fill its gap today. The standard mantra of traders is that gaps fill more often than not. I don’t know how true that is, but I do know lots of people believe that it’s true.

What happens when the market proves a lot of people wrong? You get a range breakout. The idea of the Opening Gap Reversal is that a lot of people who had anticipated closing the gap are getting out of that trade. There are also those of us who are there to take advantage of that, which adds to the momentum of this variation of the opening range breakout.

The entry for this trade occurs on the breakout from the morning range.  You can see in the First Solar (FSLR) online stock chart, that the price reached a high of 137.44 before attempting to close its gap.  FSLR was about half a point away from closing its gap before it took off.  You can see how the volume ramped up as it approached and broke that morning high at 137.44.

The Result

After the breakout, FSLR ran up a point and a half before taking a breather.  Then it decided to run another 6+ points (after nearly falling back into the morning range).  It would have been rather lucky for anyone to catch all the available movement on this one, but there were plenty of profit taking opportunities.

As I said above, the Opening Gap Reversal is a type of Opening Range Breakout.  For more tips on how to play the Opening Range Breakout, check out “3 Factors for Opening Range Breakout Success.“

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The great thing about science is that it full of fun facts and formulas.  The fascinating thing about trading is that it is not.

I pointed out a support level on Apple (AAPL) at 168.67 in another post. In that post, I also mentioned that I was long Apple (AAPL) above 168.67, and short below that level.  Then, this morning, I tweeted a short trade even though the price was above 168.67 on my day trading charts.

“You’re a liar!” you might have shouted; “You tricked me!  I went long because you said to go long!”  I also qualified that statement with “It depends on where it opens on Monday, and where the market takes it from there.”

Why I Went Short

I saw Apple (AAPL) gapping up from a big support level. Then I noticed that the market was making new highs, but Apple refused to go up, so I got short.  I covered half at the whole dollar (169.00) and left the rest open with a 2nd target of that support level at 168.67.  As I was watching other stocks, Apple (APPL) came right down within a hair of that price (168.70)  & reversed. I ended up closing out at break even.

If you take anything away from this blog, I’d prefer that it’s the ability to learn these strategies & implement them rather than trying to copy my trades.

Support & Resistance is Not Exact Either

I should have been keeping an eye on this one.  That inverted hammer (a bullish reversal candle) so close to such a major support level would have been a great place to reverse that position and get long.  Just because the price didn’t exactly touch this level, doesn’t mean it missed the support.

First off, people like “round” numbers (5s, 10s, etc), so it’s possible there were many buy orders waiting at 168.70 which was the closest “round” number to the support.  Second, support and resistance is often more of a price zone, rather than an exact price point.

I often exit positions a few cents above or below support/resistance because I’d rather ensure a fill and miss those few pennies, than have a position reverse on me.  Don’t give it too much space, though. Generally 3-4 cents is good enough. It’s important that you realize that support/resistance is frequently a “close enough” situation. It’s not an exact science.

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The OHLC Indicator is one of the simplest day trading indicators I know of. I don’t know if you’d even call it an indicator. It’s basically just doing something for me that I’m too lazy to do, and I love that because it saves me time and effort. I can use this time to do other tasks in the morning, like scanning for new stocks to add to my watch list. The OHLC indicator stands for Open, High, Low & Close. The indicator simply plots the prior day’s Open, High, Low & Close on your day trading charts.

Why is This Useful?

The OHLC indicator essentially plots 4 built-in points of possible resistance or support.  These levels can provide trades on a break, or a bounce and also provide great targets and stops.   The high and low are stronger than the open and close but all are valid places to watch for resistance or support.

Day Trading Research in Motion (RIMM) Using This Indicator

Today I took a trade in Research in Motion using the OHLC indictor.  It was the perfect storm for this indicator and resulted in a 2 point run, most of which I caught.  I won’t get into the specifics of the trade(s) here, because I am merely using this as an example for the OHLC indicator.  I did call these trades live on Twitter though.

It Started with the Daily Chart

What made this trade so probable was the fact that the level I saw on the OHLC indicator aligned with a recent level of support on the daily chart as you can see to the right.  That general area (give or take a penny or two) provided resistance for 3 days recently.

The Perfect Storm

RIMM then bounced off of this level several times this morning (indicated in the upper chart) as SPY bounced off of its highs for the day.  Then, as the SPY trended downward, RIMM held at support which is indicated in the chart at the beginning of this post. The fact that RIMM held strong while the market was falling was a sign of strength and increased the probability for this trade. Then the market bounced near its lows and headed back upwards with authority.  This allowed RIMM to finally break its resistance at $77.67 and it began quite a journey upwards to nearly $80.  I was adding and taking profits on this one all the way up. Pretty exciting, huh?  Now, go ahead and find the Prior Day’s OHLC indicator for your charts and throw it up there.  Go on, I’ll wait… Okay, now don’t expect this indicator to lead you to instant success.  As you can see in the trade above, there were many factors that went into this trade, as there are with any trade.  This is not a system (buy above yesterdays high, sell below yesterdays low) etc.  It’s part of an overall day trading strategy.  The OHLC indicator is just a tool in the shed.  My gift from me to you.  Use it wisely. If you have trouble finding the OHLC indicator, I have used many charting programs and can probably help you find it. Just leave a comment asking for help (because others may have the same question) or shoot me an email (Jason@ChartShark.com) and I’ll square you away.

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I had quite a morning day trading today.  The following is a transcript of my Tweets sent via Stocktwits as I traded RIMM. Since it all happens so fast, it is difficult to really give followers a picture of what I’m actually thinking, so below I’ve added what I was thinking at the time, and since I am not very smart, I have added what I assume a more prudent trader may have been thinking in the same situation.

The trading day started a little rough, and some guy prosed the following question;

9:44 am – “$SPY how do u day trade when no trend?”

To which I sarcastically replied:

9:44 am – @victorcharlie very carefully

What I was thinking – Hm… good question… today might suck…

Prudent trader’s thought – you day trade with a nimble mind, a sharp eye, and tight stops

9:46 am – $RIMM is running

Me – I’m going to catch a big fat piece of this run.

Prudent trader – If the stock market allows, I will take a calculated entry based on several well-honed criteria.

9:51 am – $RIMM @ resistance @ 78.13

Me – Yesssss, if this breaks, I’m in!

Prudent trader – Not yet… wait for it…

9:55 am – And now she’s dropping $RIMM

Me – WTF?  This is BS.  Good thing I didn’t enter.

Prudent trader – There was no way that run was going to continue.  The tape knows all.

10:00 am – Looking to short $RIMM below 77.61…

Me – I’m going to make money day trading today if it kills me.

Prudent trader – Having witnessed previous resistance at this level, it has now set up as support and a break of this level may cause it to run down.

Full Time-Line of Trade Tweets

10:02 am – Hm… nevermind on the short with the $SPY acting behaving the way it is.

Me – What is going on with SPY?  Is it drunk?  Am I?

Prudent trade – Choppy day… There may be no day trading for me today…

10:04 am – $RIMM I lied, shorting w/ tight stop

Me – Fuck it, I’m in.

Prudent trader – “F” it, I’m in.

10:06 am – $RIMM Target at Friday’s high coming up…

Me – I’m getting some money out of this ASAP.  Mmmm easy money.

Prudent trader – Previous day’s highs and lows often provide support/resistance.  This is the first logical place to take some profit off of the table.

10:09 am – $RIMM took some profit @ 72.10, new stop at B/E.

(clearly I meant 76.10 here, but tweeting and day trading (day twading?) can be a pain in the ass)

Me – ka-ching!

Prudent trader – Nice trade according to plan, where’s my next target?

10:13 am -  $RIMM approaching day’s lows.

Me – Woot!

Prudent trader – WTF does “Woot” mean?

10:15 am – $RIMM stop moved to 76.92.

Me – don’t want to lose my hard earned monies

Prudent trader – having previously had a difficult time churning through this level, it appears to be  significant, and a break above will likely mean a short term reversal

10:32 am – While waiting for $RIMM to move, took a short in $AMZN, but stopped out for a loss. Looking to short $AAPL below the dollar mark.

Me – Woops.  F AMZN.  Dicks.

Prudent trader  – AMZN appeared to be dropping with the market.  Oh well, now we know otherwise.  AAPL appears weak though, and may drop here…

10:35 am PS Raaaar I’m a bear. Right now… A shark in bear’s clothing.

Me – I’m hilarious

Prudent trader – The market may be starting a downward trend here.  I am short on the market until it proves otherwise.

10:37 am – And for those of you who love dead whales (you know who you are) – http://su.pr/2jFWwI

Me – Omnomnom

Prudent trader – Sharks love the occasional dead whale for dinner.  Observe:

10:38 am – Short $AAPL… stop above the dollar

Me – Finally, I knew it.

Prudent trader – That was a well taken entry.  I will keep a close stop on this one since the market still seems tentative.

10:42 am – Still short on $RIMM, just got in on $AAPL – going to let these one’s run with the market for now.

Me – Oh yeah, we’re going down today.

Prudent trader – It seems the market may be setting up to trend down today.

10:59 am – Out of $AAPL @ B/E. Looking to get out of $RIMM above 76.25.

Me – Shit shit shit.  WTF happened?

Prudent trader – It appears the market is either reversing or its going to be a choppy day.  Watching closely…

10:59 am – Out of $RIMM

Me – Screw this, I’m going to go play Xbox.

Prudent trader – 1 winner, 1 loser, and 1 B/E; not a bad bit of day trading for such a horrible trading day I think I am out for today.  One of my day trading secrets is that 1 big win is a good day.

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In my post,  “10 Ways to Build a Better Watch List,” I discussed how you might spend your pre-market morning finding great stocks to trade.  Amazon (AMZN) is on my core watch list, but if it wasn’t, it definitely would have come up on my radar using the criteria in that post.

There was news on Amazon (AMZN), which brought in a lot of volume (specifically buyers), which caused it to gap up.  It was a domino effect that made AMZN ripe with trading opportunities.  As you can see in the stock chart above, I’ve shown 2 trades on this one as well as a trade I might have made if I was paying attention like I should have been.

The first trade was cut short because I had some business to take care of away from my desk (check me out on Twitter for the specifics.  TMI?)  Another opportunity to enter came and went while I was distracted.  I was either watching another stock  or getting really into reading Stocktwits.  I don’t recall which.  I did end up entering a second trade eventually, and that trade went according to plan, though I may have held on to it a bit longer than I should have.

Amazon (AMZN) Trade 1

This one was a pretty easy entry.  Amazon (AMZN) looked strong right out of the gate.  After it paused and regrouped, I took an entry above the earlier established high.  As I mentioned earlier, I was taken away from my desk, so I set my software up to exit my full position a couple pennies below the dollar.  I had it exit the whole position because I wasn’t sure how long I was going to be away, nor what might happen while I was away.  I also programmed a stop below 90.00.  I returned to find my target order filled.  Cool.  But the market was strong, my stock was strong, and I could have played this trade much better.

Amazon (AMZN) entered a lull as shown on the chart at the top.  Just after the lull there was a great entry opportunity.  And as I mentioned above I was distracted and missed the re-entry. A combination of distractions caused me to miss out on an entire point of potential profits.  That really shows that when you’re trading you need to focus focus focus.

Amazon (AMZN) Trade 2

So, as I was saying, the market was strong, AMZN was strong, and there was more money to be made.  I regained my focus and looked for another entry.

I generally tend to pull back into a 5 minute chart after 10 am, but I entered this trade on the 1 minute chart.  My approximate entry is shown on the chart at the top of this post.  You can see how the volume faded, and the price dropped back to support at the whole dollar (92) & EMA(10).  Once the stock started showing strength again I took an entry & switched to a 5 minute chart.  My first Target was the next whole dollar at 93.  Amazon (AMZN) blasted through that target pretty quickly with no problems at all.  Easy money.

Considering the strength of the market, and the stock, I was taking this one as a longer term (for me, long term = hours instead of minutes) trend trade.  This means I had no specific targets, just an exit rule.  I would exit when the price broke the EMA (10).  This may have cost me, since my solid target, had I aimed for one, would have been the next whole number at 94.  That target would have been hit and I could have exited with 2 points profit on that portion of the trade.  Instead, I held out for the EMA (10) break, and lost a little potential profit.  Was this greed?  Or ignorance?  I really thought this one might keep going.  I just didn’t see a reason to exit until that break.  The market certainly didn’t quit at that point.  Amazon (AMZN) made it back to 94 again, and actually poked a bit above its previous high, but didn’t continue to trend upwards as I’d thought it might.  I can’t worry about it too much; it was still a profitable trade.  Perhaps I’m just over-analyzing.  The key here is that I planned the trade and traded the plan.  Sometimes, though, I think I could be a little more nimble with my decisions and adjust according to conditions.

Today was a really easy day for day traders.  There were so many stocks that trended upwards for various periods of time, and the money was practically falling into our laps.  And when the market trends, the statement “the trend is your friend” really holds true.  There are times when it holds true within specific stocks, but when the market as a whole is trending, it is often a bad idea to try to be clever and fight the trend.  Unless you were shorting McDonalds (MCD) today.  Then you might have made a couple bucks.

So what do you think I did right in this trade?  Or what did I do wrong?  What might you have done differently?  I imagine your system doesn’t have the same entry & exit requirements that mine does and I’d like to hear about it.  Also, did you have any particularly awesome trades today?  I know this is only one of several stocks I traded today that made a dollar or two. Anyway, let me know by leaving a comment.

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As promised today on Twitter via StockTwits, here’s a recap of the FSLR day trade taken this morning.

This trade was a result of the stock market in general being seriously downtrodden today along with this particular stock’s push to close the gap feeling especially weak.  I watched the tape to get a feel for how this one would react to yesterday’s low, and it just didn’t appear to have the ability to push through it (as a matter of fact, it reversed a few cents lower than the actual PDL).

Entry

As indicated on my day trading chart to the left here, I took an entry around 9:44.  The previous day’s low (PDL) was set at 154.54, and the price kept hanging around the 154.51-154.53 range.  I entered just after the doji at 09:44 with a fill at 154.43.  I had a stop at 154.65 – .22 total, and .10 past the nearest resistance seemed reasonable place for a stop on this early trade.

Target 1

The closest visible support I saw was the natural support of the whole number at 154.00.  I took that quick scalp with half of my position.  I got a fill at 154.03, for a gain of .40.

Target 2

The next target in my sight was the next whole number at 153.00.  At this point, my stop has moved up to my entry point.  This one rolled back quite a bit, all the way back to 154.29 or so, but eventually it punched through 154, and on to 153.  I exited here with a fill of 153.03 for a gain on the second half of my position of 1.40 total.  And a lucky fill it was, as the price bounced violently away from the whole number.

There it is, the FSLR trade recap.  I also took another trade this morning on AMZN that was closed for a small loss.  I had POT on my watch list but missed the boat on that one entirely. No big deal, I have a football (soccer) match to go win, and a 3 day weekend to look forward to.  Have a great Independence Day! (Belated for you Canadians.)

UPDATE: Lost the game 3-4.  Solid game though.  We’ll take the next one.

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Day trading can present some great opportunities.  I posted yesterday about day trading a down market.  Some days just have the potential to be very profitable for day traders.  Here’s a brief overview of some specific day trades that could have been grabbed.

Research in Motion (RIMM)

RIMM opened well below yesterdays low. It made a very weak attempt to close the gap down from yesterday.  When that failed, it was all down hill.

1. Arrow 1 shows where RIMM broke through its low of the day (LOD) here.  It was a pretty easy short trade down to the whole number at 70.00

2. I like to target whole numbers as they tend to provide natural support/resistance.  70.00 was a logical target here,and the price blasted right through, making it easy to take half out of the trade and let the rest ride on to the next target.

3. Since I love whole numbers, the next logical target was 69.00.  With a stop set up right above 70.00, you might have sweat it out a bit as it slowly faded back up, but the volume was weak, and this really wasn’t an authoritative move.  After coming close to the 70.00 mark, it turned back around in our direction, and headed straight for target 3.  Easy Money.

Goldman Sachs (GS)

GS actually made a valiant push up and through its gap.  The pull of the stock market was too much for it though, and GS eventually succumbed to its strength.

1. GS presented trading opportunity as it comes around to its LOD.  The stock market was just dragging everything down.  Once GS hit its LOD, it was easy to pick a couple of targets.

2. You can see the Previous Day’s Low (PDL) indicated on the charts with a pink horizontal line.  This was the first obvious target, and it cruised right down to it without a problem.

3. The next target I saw was the whole number at 141.00.  The stock market kept pulling this one right down with little hesitation.  No sweating it out here, just money in the bank.

Amazon (AMZN)

I saw a couple of trades on Amazon (AMZN).  One closed for a small loss, the other was a solid gain.

1. The first trade came as AMZN approached its LOD at 81.00.  This was paired with a whole number, and it seemed like a break of this line would make for a solid breakout.

2. After a few minutes of this stock not going anywhere, you have to take the loss as it pushes back above 81.00.  I would want it to move to 80.00 a lot faster considering the momentum I would have expected it to have.

3. A second opportunity came as AMZN approached 80.00.  The thing that made this trade interesting was that SPY was approaching the 90.00 mark at the same time.  This trade became a highly probable win when AMZN broke 80.00 almost in unison with SPY breaking 90.00.

4. This trade proceeded without incident to the 79.00 for a first target.  The next target would have been the next whole number, which AMZN never made it to.  The second half of this trade was closed out when, within the next couple candles, the 5 minute candle closed above 79.00.

Apple (AAPL)

Apple (AAPL) was an interesting one.  Even though it gapped up, I was watching it because of the news that broke about Steve Jobs over the weekend.  I mention in my article “10 Ways To Build a Better Watch List” that company officer related news is something to watch for.  Steve Jobs IS Apple (AAPL) and this news was sure to cause a reaction with the shareholders.

1. AAPL provided an opportunity early on when it broke 140.00.

2. It was a quick scalp shot down to the first target at the Previous Day’s High (PDH), indicated by the blue horizontal line on my charts.

3. Target two would have been 139.00, the next whole number.  Apple didn’t want to go there yet, so it’s a close of the second half for a small loss.

4. A second entry point presents itself as the price breaks through the double-up of support/resistance at the PDH & Previous Day’s Close (PDC), indicated by the red horizontal line on my charts.

5. You know how I feel about whole numbers by now, and this one looked like it might not make it, but gave no real reason to exit.  It finally pushes through 139.00 at this point.

6. Another double-up of the Previous Day’s Open (PDO) and the whole number at 138.00 looks like another great entry point.

7. A few minutes later AAPL proves that hunch wrong, and the trade is closed (if you were being super stubborn) where this arrow indicates.

This is just a brief overview of the type of trading I do on a day when the trend is clear.  I don’t see a need to grind it out, just take the simple support/resistance trades.

Anyone take any money away from these stocks?  How about one of the many other stocks that dropped like a rock yesterday?  Let us know by leaving a comment!

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