All Entries in the "chart patterns" Category
Trading Video – Making Money from Mediocre Trades
April 7, 2008 at 4:19 pm
Here’s another video of a trading lesson I learned in the market today.
Not every trade is stellar, so naturally there are some poor and mediocre trades. Today’s lesson discusses the latter. This one has a simple solution and yet I’m surprised how so few traders actually do this.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
How Pullbacks Help Build New Chart Patterns
October 29, 2007 at 7:10 am
The recent market pullback may or may not be finished, but it brings up an important subject which is why pullbacks within trends are good and healthy. Whether we’re talking about an uptrend like the one the market is currently in or a downtrend like we’ve seen before, prices don’t move nonstop in the same direction without taking some breathers along the way. Call them pullbacks or retracements or dips or whatever, but the fact remains that contra-trend moves certainly help to produce new chart patterns for potential new entries as the trend continues.
In the current market uptrend, pullbacks help to shake up the charts and allow them to reset. This creates new base-building opportunities for stocks which had previously gotten too extended to chase. As a stock goes parabolic and keeps climbing higher without a rest or dip, new buys become very high-risk.
I never want to buy a downtrending stock, but I do get excited when I see pullbacks come along. Even just 1 or 2 bars of downside within an uptrend can lay the foundation for a new base or chart pattern to build. Let’s look at an example and I’ll show you what I mean (click the thumbnails to see the full-size images).
The Uptrend
HANS has been trending higher at a rapid pace, hardly slowing down for new entries. Here’s a look at the run:
(Click for full-size image, courtesy of TeleChart)
The Pullback
A week ago, HANS sold off hard with a pair of downside spikes coming right off the highs, shaking up the overall appearance of the chart and signaling a temporary end to the nonstop run. Although traders who held the stock during the decline no doubt felt some pain, this kind of shakeup is exactly what can bring opportunity. The pullback itself doesn’t make a new base, but it does create the framework for a new base to mature from. Here’s a look at HANS post-pullback:
(Click for full-size image, courtesy of TeleChart)
The Rebuilding Phase
Since the dip, HANS has bounced again and currently is back near the highs. This allows us to draw two trend lines, one along the recent lows and the other along the recent highs, creating a bullish ascending triangle pattern. This hypothetical example shown below needs more time to mature and really develop fully before it would be a trade I’d take, but I’ve drawn in yellow bars to show how price might cooperate in order to allow this pattern to be complete. Some additional horizontal price action within the blue triangle would create a solid base from which a new advance could build on, while simultaneously providing a tighter natural stop-loss level as the triangle narrows. Here’s a look at one way in which this pattern might progress:
(Click for full-size image, courtesy of TeleChart)
I like the HANS setup and would consider taking it for a trade if it develops the way I’ve hypothesized, but the example should help to show you the kinds of things to look for after seeing a dip in the market or a particular stock which you’ve noticed climbing nonstop. The initial dip sets the base-building process in motion, and that’s always a good thing. Pullbacks should be a welcomed sight for any technical trader, and now you have one example of something to watch for in the charts the next time a dip comes along.
Trade well today!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
When Patterns Fail
June 7, 2007 at 11:08 pm
Things turned ugly this week for the first time in a while, and a lot of charts actually needed this shakeup. The CNBC headlines and dreary comments of “the worst week since March” don’t actually say much, especially since all we’ve done pretty much since then is climb higher each week. But it’s been a pretty quick correction so I can agree to that.
It’s too late to short sell on this move and a very high-risk spot to buy, so it’s the ideal time to clean out the watch lists and remove the stocks that all of a sudden are simply clutter. Lots of stocks were setting up bullish chart patterns just a few days ago, but in the last couple of sessions they’ve pulled back sharply and negated their patterns. In my book, that’s grounds for dismissal from the watch list!
One example is JRCC, which I highlighted earlier this week in my stock newsletter for members at TheStockBandit.com. The stock had been trending higher and had built a bull pennant pattern, implying more upside could come if a breakout could be produced. Instead of breaking out and triggering a buy for us, it simply sat on the watch list until today when it folded up like a cheap tent, making the pennant pattern obsolete. I’m anything but a camper, so I’ve removed this one from my watch list. Here’s a look at the failed pattern:
(Click for full-size image, courtesy of TeleChart)
The good news is that we never bought this stock because it never broke out. That’s the beauty of trading from the charts. If the expected move never comes or the stock reverses entirely, it doesn’t even matter. And that’s a far cry from trying to be overly anticipatory and buying before the chart says it’s time to.
This volatility in the market is going to keep the trading environment good for a while, and the pullback will help to produce lots of new setups for trading in the coming weeks. In the meantime, keep those watch lists streamlined with stocks that look ready to move, and get rid of everything else. It’ll help you move faster once it’s again time to buy. But not yet.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Gauging Urgency in Chart Patterns
May 24, 2007 at 7:51 pm
As a chart pattern trader, it’s all about the price action for me. My research isn’t based on company fundamentals or what some analyst is predicting for the next year – it’s based solely on supply and demand as reflected in the chart.
I trade common patterns like flags, pennants and triangles, all of which provide continuation plays within uptrends like we’re seeing right now. The patterns themselves present clear-cut entry and exit levels for my trades, so identifying them is certainly a key part of my method.
However, once I’ve identified a technical setup that I like, my focus then turns to the price action within the pattern. Doing this gives me a much better indication of just how antsy the stock is getting. Watching support and resistance levels within the pattern gives me these clues. A stock which is itching to break out is going to be perking up to test resistance, while one which is acting sluggish will generally be hovering at support.
An example of this can be seen in AMZN, a stock we just closed out Wednesday at TheStockBandit.com. We caught 5% at the first target on the first day, and 11% at the final target on the 3rd day. It was a great pop, but let’s look at how the setup developed.
I first listed AMZN in the Bandit Broadcast stock newsletter on May 3rd as it started to create a nice base following the run it made on the earnings announcement. This implied another wave of buying, so I set it up as a swing trading candidate for members. Here’s the chart I showed that night:
(Click for full-size image, courtesy of TeleChart)
The stock didn’t break out for a few days so I highlighted it again to provide an update on how it was progressing. Again I stressed waiting for the buy point before entering, which serves as our confirmation that the stock is headed in the anticipated direction. Here’s the chart I showed May 7th:
(Click for full-size image, courtesy of TeleChart)
A week later, AMZN was trading in a channel pattern, which would ultimately serve as a nice launching pad for another upside move if resistance could be cleared. Here’s the chart from May 14th:
(Click for full-size image, courtesy of TeleChart)
The final indication came when AMZN started to turn up late last week, and you’ll see in the chart below how it moved to the top end of the channel before finally breaking out on Monday when we got our buy signal as AMZN finally hit our trigger price at $63.85. We took partial profits on Monday into the initial move, held it 2 nights and took the rest Wednesday at $71.00 (11%). Pretty nice for a 3-day trade. Here’s the chart at the time of our exit, looking a bit short-term extended and due for a rest:
(Click for full-size image, courtesy of TeleChart)
So the next time you spot a nice chart pattern, remember to measure how well the stock is acting within the pattern. It might indicate that more patience is required before your buy signal is triggered, but once it perks up you’ll know the time is getting close.
And patience pays!
Jeff White
President, The Stock Bandit, Inc.
Take the Money and Run!
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Parabolic Blowoff Top
May 15, 2007 at 7:20 am
It’s been 7 years since we saw a lot of these chart patterns emerge, but even today there are stocks which get in uptrends at steeper and steeper angles until, POP, the party ends. These moves don’t happen frequently, but when they do there are some big opportunities for pain and gain in both directions.
TNH has been trending higher for many months now, and recently this one went parabolic. As the stock continued to advance, bases were built and breakouts were produced time and time again. Without a sufficient resting phase for the stock, the pace of the climb continued to accelerate until the stock was moving up at a near-vertical rate. Once the ascent reached a climax, the path of least resistance became down.
There is a great deal of psychology at work in a move like this, and it impacts those on both sides of the trade. Buyers see gains stack up at a dizzying pace, and more momentum players quickly join the chase. This produces some stellar gains in a very brief amount of time, which feeds the rush. Those who want to fade the move and short sell into the strength quickly get squeezed, watching their losses mount rapidly as panic sets in. The shorts begin to cover, adding fuel to the fire as the stock reaches stratospheric levels. And once everyone has finally made their buys, the music stops and there’s not enough chairs. There’s nobody left to provide demand for the stock, so everyone rushes for the exits at once, producing a spectacular reversal with record volume.
TNH is a perfect example of what a blowoff top looks like after a parabolic run. This one image shows both fear and greed, and it says “stay away” for the next little while as this stock tries to get its bearings.
(Click on chart for full-size image)
Staying greedy in a big trade or trying to fade a powerful move too early can be costly, so keep your wits about you when you see explosive moves like this. If you don’t, you’ll be padding someone else’s trading account!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Trading Psychology, Swing Trading[/tags]
