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Monday, September 23, 2019

Bearish Rising Wedge Pattern For Shorting

Hey folks, 

I wanted to share an Educational post discussing the 'Rising Wedge' pattern, which is a BEARISH pattern and one we were looking for and traded often back in late 2018 as the market started to downtrend.... 

Let's get straight to it! 

Here are a few examples of Rising Wedge patterns and what they look like: 


Notice the huge volume break down in the share price for a few days marking institutional selling(aka Distribution!)... usually these high volume distribution phases start from a big catalyst such as a very poor earnings report(Bearish Power Earnings Gap) for example!  


The price than attempts to rally back or bounce on very low volume as the price actions looks and "feels" very anemic and uninspiring....
before price starts to roll over once again to the downside!  


As many of you have seen lately, I've been sharing more and more RISING WEDGE setups in the AOT private twitter. 

Rising Wedge patterns are bearish continuation patterns. They are the exact opposite of Falling Wedges(which are bullish patterns).... 

I especially like Rising Wedge patterns where the stock starts to bump into resistance areas such as key Moving Averages or Downtrend trendlines which act resistance ... 

Rising Wedges looks like this: 



This pattern works best in stocks that already in a down trend.... So you're essentially looking for a low quality, meager, low volume bounce(where the stock simply bounces to relief oversold conditions, aka "Dead cat" bounce) before it resumes the previous trend, which is DOWN... 

I especially like to use this pattern in tandem with a "BEARISH Power Earnings Gap" : so a stock that gaps down and sells off after reporting poor earnings, the stock then makes a weak multi-day, low volume bounce that bumps and stalls into resistance... then look for the stock to roll over to downside again... 



For example, last week on the private twitter, i shared this DDD short setup ....
 
Notice how DDD gapped down a few days ago and sold off hard all day after reporting poor earnings... 
The stock then made a weak multi-day bounce to form a mini Rising Wedge pattern before rolling over with the Nasdaq late last week... 


Can see how DDD started to roll over to downside .... 

And then started to accelerate to downside.... 

DDD ended up being down about 6% to 8% on Friday ever since pointing out this setup.... 

This is the sort of pattern that's been working in this weakening market lately... 

GS, did a similar Rising Wedge pattern last week as well .... 



Since this market has been very volatile lately, it's not a bad idea to reduce size but widen stop losses a bit to allow more room for stocks to wiggle around while they complete trading patterns... 

You can enter a short position while the stock is stalling resistance near the Rising Wedge's triangle apex or once it starts to actually roll over to the downside once you've identified a good looking Rising Wedge pattern. 

Stop loss would go right above the Rising Wedge pattern's most recent pivot highs. 


I hope you found this post helpful!!




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Happy trading! 


Wednesday, July 17, 2019

Stair-Step Stop Loss Method

Hey folks!


I just wanted to share this quick post on one of the techniques i use to stay in winning trades LONGER and truly give those winning trades a chance to run to maximize profits in a logical and methodical manner! 

AOT members know that i use the STAIR-STEP Stop loss method regularly and today's i'd like to talk about why I like to move stops to JUST UNDER the previous day's lows once we are in a stock that is working.... 

So essentially, as long as the trade is working and the stock price is moving HIGHER after breaking out, and it's a swing trade that's working well and market conditions are "favorable" for swing trading, i like to move the stop loss up to just under the previous day's lows and keep walking up the stop UNTIL the stock takes you out. 

Obviously, every now and then you're going to get STOPPED OUT prematurely, SURE, no system is perfect!! 

....But on some occasions you're going to land on a "home run" trade, where you get a NAIL an entry in a strong momentum stock right as the breakout gets going HARD..... 


Let's take that NTNX as a good recent example! 



Assume you got into it right as it triggered thru that KEY $37.00 breakout spot! 

Trade is working and you keep walking up the stop to just under the previous day's lows so you will essentially stop out when the stock breaks the previous day's lows.... 

The idea behind this method is, once you NAIL an entry, every now and then, you are on going to land on a sweet trade like that NTNX or that AMD(as a good recent for example).... 



So while the mathematical probables are not high to nail many trades in any given single year of that caliber BUT if you land say 2 to 3 trades per month like that NTNX or AMD, you will be ONE HAPPY TRADER! Wouldn't you agree?! 

Try using the 'Stair-Step Stop Loss Method' on your next winning trades and see if this works for you! 

Hope this helps! 

Happy Trading! 



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Friday, April 5, 2019

How To Trade a BREAKOUT AND RETEST Pattern

Hey folks! 

I wanted to do an educational post today and discuss the actual pattern that we played for that BABA trade we did this week... 

A "Breakout and Retest" pattern.... 

Perhaps some of you might've noticed that recently(this is especially true in CHOPPY markets) that some times stocks that breakout will sometimes "fail"... that happens a lot, even in strong up-trending markets actually! When a stock breaks out on huge volume, often times the stock will keep on running and it would be very hard to catch that stock if you missed the initial entry and really want to get into this trade, you're left with TWO choices: 

1: CHASE THE STOCK 
or 
2: WAIT FOR A Successful RE-TEST of the breakout 

As you all know by now, I'm not a big fan of chasing a breakout... I'd much rather remain sidelined and wait for a POTENTIAL retest of the breakout... exactly what we saw in BABA earlier this week. 


This BABA setup was emailed to AOT members with a breakout entry was $180.00 



.....and here's how the stock did since that emailed BABA setup broke out .... 



As you can clearly see in the above BABA chart... the stock did indeed breakout that $180.00 trigger price... some of you caught it on the day and that's GREAT since it ran up to as high as $185.50 two days later.... but notice what the stock did after peaking out at $185.50, it started to pullback.... it fell about $5 to $6 from the peak on Monday morning and started to show signs that it was RETESTING the breakout area on Wednesday afternoon after the stock started to revisit that $180 to $179 area... 

For a successful RETEST of the breakout to be valid, the stock doesn't need to be retest the EXACT price of a breakout, since as we all know, there's no room for "perfection" in trading. Stocks can successfully retest a breakout by simply revisiting the breakout price area. We want to see the stock show us that is willing and able to not only retest the breakout area but also HOLD THE BREAKOUT area once it is retesting the breakout... which is exactly what BABA did on Wednesday. 

We went long BABA at $179.20 with a stop loss at $175.00 
If the stock fell below that $175.00 area, i'd consider that Breakout and RETEST pattern to have failed at that point. 

In the below chart is a STEP BY STEP analysis of what i was seeing at the time this was setting up.... 




If you follow my tweets closely, you'll probably recognize this SMH chart... 

Notice how the SMH broke out nicely in mid-March... ran nicely for a few days and pulled back several days later giving the illusion that the "breakout failed"... NOPE! Breakout did NOT fail! .... it merely pulled back to RETEST the breakout area, building on layers and layers of support as the stock/ETF slowly re-attracts more new buyers for ROUND TWO.   



 So if you missed ROUND ONE... RELAX.... calm down, take a deep breath and wait.... 

Here's one more recent example in ACB ... 

Another setup that emailed to AOT members a few weeks back which played nicely at the time... 
Notice how it broke out nicely and ran up from $8.40 to $10.30 in a few days!! 


I want to especially pay attention to the volume patterns in ACB, both on the UP days as well as the DOWN days. 
Notice how on up days, the volume that's been coming into this stock is enormous, very characteristic of institutions piling into the stock. And the volume on the down days is very minimal, very tiny compared to the volume on the up days. 

A low volume pullback to RETEST the breakout is extremely important when looking to play BREAKOUT AND RETEST patterns.

A low volume pullback is indicative of mild profit taking by the first group of buyers on the initial breakout... a low volume retest that holds in and around the breakout area will attract a new set of buyers to lift the stock price higher. The SMH chart above shows a perfect of this phenomena at play! 


These are great setups to look for, especially in a choppy market where we'll often see this setup come in abundance! 


Hope this post was helpful! 

Happy trading! 


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Sunday, March 31, 2019

How To Regain Your Confidence After a Trading Slump

Hey folks, 

As traders, we all know by now that taking losses and the act of taking losses is a "necessary evil" in trading. 

Bo Yoder, one of my favorite traders whom i used to follow religiously in my earlier years as a trader wrote some very good stuff in his book "Optimize Your Trading Edge"... he discussed that ALL trading systems will go thru a "pay-out cycle" and a "pay-back cycle".
 
The PAY-OUT cycle is when your system is winning and making money consistently. Trading feels good and is fun! You're winning, a lot! 
The PAY-BACK cycle is when your system is going thru a losing streak and losses are becoming more frequent, getting stopped out on many trades! Trading sucks!  

A trader's job is manage himself as professionally as possible thru BOTH these of these inevitable cycles. 

These cycles often times start at any moment and can start for any reason. It could be one really poorly timed trade, or one unlucky trade(like my recent Boeing trade after the Ethiopia plane crash for example) that haunts you psychologically or it could even be an external life changing event, such as stress from a divorce, anxiety from a recent job loss, or heaven forbid an untimely death or illness in family etc). All these things can trigger a "PAY-BACK CYCLE". 

PAY-OUT CYCLES can start after you have accepted the fact that you just went thru the PAY-BACK cycle, moved to 100% cash for a few days to "push the pause" button. You've come to terms with the situation and now feeling mentally more relaxed, focused, ready and hungry to trade WELL and with more discipline(keep in mind, there's a  big difference between being hungry to trade and hungry to trade well).  


Here's a good way to look at taking losses while trading: 

Needless to say, the hardest part about trading is TAKING A LOSS, closing a trade for a loss. It's hard not only because it means that you will have to incur an actual loss to your equity which obviously will decrease your account size but also because as emotional, rational, thinking human beings, as traders we all want to be RIGHT! .... Nobody wants to be wrong of course..... but as we all know, this is NOT the reality of trading! 

A traders, we have to accept the fact that there's ABSOLUTELY nothing wrong with getting into a mistimed trades: 

That happens to EVERYONE regardless of experience. Losses are an inevitable part of this business. Trading is a business, just like any other business. 

Recovering from a large draw-down is a challenging and frustrating. It can mess with your head and creates all sorts of emotions like anger, despair, hopelessness and so on. It could affect you psychologically and affect your personal life too in some cases. 

All traders will sooner or later learn this this HARD WAY unfortunately(maybe even a few times before it really sinks in) but rest assured everyone goes thru such losses and draw-downs. Many new things will surely be learned along the way and will build your trading character.   

The best thing to do, I've found is to have STOP LOSSES in place and know what you're willing and ready to risk on any single trade and let the market take care of itself even if it means getting stopped out for a loss.
 
Think of trading as a business like any other business. Every business will sooner or later have to incur a "loss".  For example, a grocery store that's carrying expired inventory, an Auto manufacturer who recalls a faulty car part or maybe even a bank that's made bad loans and now all have to incur these losses, as "business expenses".

Taking losses in trading has to be seen as a routine "business expense". Some losses will be larger than others. It's a natural part of the business we are in. Embrace it, don't fight it. 

But now comes the tricky part of this business, how can i recover mentally when i just had a disaster week or month and made several losing trades in a row? My confidence is shot, I'm disgusted, I'm angry, I'm frustrated!  


After more than +20 years, in this business and making tons and tons of mistakes of all shapes, sizes and colors.... I've implemented the "3 losses in a row" rule. What I've noticed over the years that for my style of trading, that any time i took 3 losses in a row, regardless if they were big, small or routine losses, i automatically know that something is wrong and i need to STOP TRADING completely. Do a "time out" in whatever you're doing and take a step back.... The "3 losses in a row" rule forces me to sit out ONE ENTIRE day and not trade at all. I will shut down my twitter, CNBC and any other source that could tempt me from making a knee-jerk reaction trade.
The goal is sit out the entire day, walk away completely and do something else... once the market is closed and i feel a little more relaxed, I'll now want to see what triggered the 3 losses in a row and what could i be doing wrong? What is the market doing that I'm not seeing? What am i missing? Is there anything that needs to be tweaked? Are the market conditions changing? Which trades worked and why? Which trades did not work and why? Have i done something different or deviated from my system? Am i being "honest" with what I'm seeing(or think I'm seeing) versus what's actually happening in the market?

Over the years, i realized that most of the time, whenever i take 3 losses in a row, it's due to a change in "market character" and my positions were caught on the wrong side of the tracks... so that requires immediate attention. For example, the market went from being TRENDING UP nicely to now being choppy or even entering a pullback phase. That's the change of market character that often triggers losses and usually requires traders to take precautions.  


As i mentioned in that blog post from 7 years ago: Things I Learned After 15 years of Trading  : "get aggressive after you make 2 or 3 good trades in a row, get very defensive when you make 2 or 3 bad trades in a row, often times traders will do the exact opposite, self-destructive behavior". 


Naturally emotions are going to be higher than usual during this time, so you should instinctively know that any trade you make on this day after taking 3 or more trades in a row or even a large loss from a single trade, these trades are most likely gonna be emotionally driven and chances are fairly high, these trades will not work out well. This is something that every trader will go thru, even professional and new traders will suffer from time to time. We are all human beings in the end, we're not perfect machines. 

The ideal thing to do is shut down completely and walk away for at least one full day... give yourself that break. 
The market isn't going anywhere, it'll still be here tomorrow so relax, you're not going to "miss out!" 

Make this a MUST-FOLLOW rule! 

Shut down and walk away for at least 24 hours. 

Once you've cooled off a bit and you're ready to get back in the saddle the following day(or 2 or 3 days later ideally), you have to instantly eliminate from your thinking the idea of "i'm gonna make back all my losses in this next trade!" This way of thinking is 100% flawed and is a very typical amateur trader thing to do. We've ALL done it before and we all know it's silly and a self-destructive way of thinking. 

Trading is a marathon, not a 100 meter sprint! 

ONE TRADE AT A TIME, ONE DAY AT A TIME..... 

Relax, take a deep breath. You will make back your losses and then some but it will not happen in ONE or TWO trades, it could take several trades or several weeks and that's TOTALLY FINE .... Rome wasn't built in a day and neither will your trading draw-down.  

Baby steps, ease your way back into your routine... until your confidence starts to come back, slowly slowly.... 

For example, the last thing you want to do is get back to your desk the next day and go long a stock like TLRY on margin to make back the losses from the previous series of trades. This will only add more emotions back into the mix and you will make more mistakes and trading losses will pile up quickly.... 

Focus on rebuilding back up SLOWLY. In a cool, calm and controlled manner. Focus on trading well. Taking the best setups even if it means having to wait another one or two more days. Adopt a "LESS IS MORE" way of thinking.....   
What i like to do is come back the following day and start looking for SAFE and EASY to trade ETFs and/or take the next series of Stock setups(triggered trades) using only 1/2 size positions and give them looser stops. I prefer to focus on taking only the HIGHEST QUALITY setups in ETFs or the highest quality individual stocks and stock setups. Go back to basics and focus on doing the "small things" right. Waiting for the absolute best and easiest setups, my "bread and butter" setups and executing this trade properly, raising stops, booking gains. I want to focus on the basics and doing the basics right. The goal is not to "make up losses immediately".... No, that's NOT the goal right now. Right now, i need to make sure that I slowly build up my trading confidence because i know when I am doing the small things correctly and focusing on find good setups, waiting for the good setups and then EXECUTING the good setups, then this is what's going to rebuild up my confidence for the next series of trades. You'd be surprised what ONE small little green trade can do to your confidence.

ONE DAY AT A TIME, ONE TRADE AT A TIME... 


Another important point to keep in mind: traders have a "breakeven mentality" when it comes to losses. Some traders will even refuse to sell a position that going against them in a very dramatic manner simply because they just want to "breakeven" and then they'll sell it. You have to be very careful when you start catching yourself thinking like this. This will land you into deep waters and into some very painful trades sooner or later. 

Traders focus too much on PnL to the point that it hinders their progress and often times just end up trading purely based on their PnL's fluctuations and not based on actual setups and their system's trades. Totally failing to understand that if you're focusing on trading well, stop looking at your PnL, only focus on finding and executing the best setups and doing all the simple things right, the PnL will take care of itself eventually. 
Never underestimate the power of small gains. Small gains add up to big gains over the long run so don't hesitate to take those small gains! 



Make it a great week! 

I hope you found this post helpful! 

Happy trading! 

Tuesday, February 19, 2019

What is a "Power Earnings Gap" and How to Trade it !

Hey folks !

I get this question often from newer AOT members so in this post, I'll explain in full more detail what is a "Power Earnings Gap" (PEG) and why they are so awesome! 

I use this PEG strategy often to create watchlists and it's actually the primary watchlist i use to generate my stocks ideas for trading!! The 'AOT Top Picks' and almost ALL the setups you folks see me posting on the @TraderStewie twitter, I get all these trade ideas and setups from the PEG list! 

A few years ago, I "developed" this strategy for generating HIGH QUALITY stock ideas that are EXPLODING HIGHER due to a strong reaction to an Earnings Report! However, a Strong earnings report is NOT enough for me to add a stock to the PEG list. I need to a big nice GAP UP in the stock price but MOST IMPORTANTLY, i want to see the stock CLOSE STRONG as well. A stock that gaps up on strong earnings only to reverse and close in the red is NOT what i want to see in a PEG candidate. The way the stock closes is equally, if not more important than the actual initial gap open. 


A "Power Earnings Gap"(PEG) is basically: a stock that gaps up after reporting strong earnings and closes the day by printing a very strong candle( a candle that closes at or near HIGHS of the session is THE MOST ideal and perfect 'Power Earnings Gap' candidate! Volume will be automatically HUGE since it's coming on news of an earnings report so that's going to add even more conviction to the MOVE since institutions are piling into the name! Remember, us small fish need to follow the foot steps of the BIG FISH, the Insiders, The movers and the shakers.... They know stuff we could never dream of knowing but luckily for us, we can see their "foot steps"(via stock price action and volume patterns) and following these foot prints can be extremely profitable if you know what to look for! 

Stocks that gap up on HUGE volume and close near the day's highs, are doing that for a VERY good reason.... if the big whales want in, i want in too!   

A picture is worth a thousands words, so let me show you some chart examples! 

This AVAV chart below is a perfect example.... 
**Note the stock GAPS UP after reporting strong earnings, then note HUGE VOLUME as accumulation volume indicates institutions are piling in the stock en mass(an especially powerful signal when you see multiple accumulation volume days over recent few days or weeks), and of course note the strong close(a big strong candle that gaps up, rallies strongly intra-day and then closes near highs of the session).... This is EXTREMELY bullish development! 


 
And here's another example of a good looking "Power Earnings Gap" …






The basic premise behind this "PEG" strategy is that stocks that make strong powerful earnings and gap up and strong on strong candles tend to keep running for multiple days if not multiple weeks/months after these big earnings gaps .... so now my job is to create a watchlist of these awesome, bad ass stocks and pinpoint entries in these stocks using my technical analysis skills and feel for the market and stocks which have taken many years to fine-tune. 

I want to be looking for BULL FLAGS, bullish pennants, mini wedges, coiling patterns, INSIDE DAY candlestick patterns etc.. to pinpoint an entry in these winners! This is where having decent technical analysis skills will really be helpful! (and I also have a specific DAY TRADING or very short term strategy to trade these awesome PEG stocks but this strategy is only shared with AOT members for now)...





So essentially I am marrying "strong fundamentals" due to strong earnings and "strong technicals" because I'm looking for stocks that gap up and close strong on huge volume which in due time should propel these stocks higher. 

And of course, like most other strategies, I also factor in a lot of other things such as overall market strength/health, geopolitical issues/news, a stock's short interest(stocks with high short interest that gap up on strong earnings will create spectacular short squeezes) and also sector strength... 

'Power Earnings Gap' candidates that have SHORT INTEREST of 10% or higher will tend to be the BIGGEST and MOST aggressive movers on upside! So try to pay attention to Short Interest: I like to use ShortSqueeze.com or Finviz.com to find out a stock's short interest. 


And here's a few more examples of stocks we a traded recently which came from the "Power Earnings Gap" watchlist! 


AMD has +17% short interest!!!




DDD has +25% short interest! That's HUGE! Shorts are gonna exit in a panicky stampede once the freight train starts to move higher... this will often make a stock move aggressively HIGHER! 






ROKU has 18% short interest!! That's pretty big short interest making it a price SHORT SQUEEZE candidate! 


Do you see the idea from looking at the above charts? Are you getting it a better idea now of how it works? 

Hope you can see the thought-process behind this strategy?! 

So in conclusion: 

1: No need to take the big stressful risk and hold a stock thru earnings! A successful 'Power Earnings Gap' stock will run for many days, weeks or months AFTER earnings!
2: A 'Power Earnings Gap' name has already proven itself!! There's no guess work here! The Big Fish have spoken and they want in!
2: The bigger the short interest the better! +10% or higher is most ideal! +30% short interest or high is ridiculous! get ready to see some spectacular squeezes! 
3: Chart Pattern recognition will help you pin point entries in these winning names! Bull flags, Pennants, Wedges, etc... Learn to spot these! 

I also created the Hashtag #PowerEarningsGap on twitter so that everyone can track and see how these stocks move and/or setup after they make 'Power Earnings Gaps"! 
Keep this link handy!! The AoT 'Power Earnings Gap' watchlist : 

I hope you all found this helpful !! 

Any comments, questions, feedback are welcomed! 


Happy trading !! 

Monday, December 17, 2018

AOT Trades Done in December

Hey folks, 

I wanted to quickly do a post to discuss our trades made thus far in December... it has been an absolutely incredibly insane market. 

One of the wildest i have seen since the 2008 stock market crash.... 


IWM is down 10% in December alone! Nasdaq and the SPY are 8% and 7% respectively and we're barely half way thru it!! 



Here's how the AOT trades have fared in this insane market for the month for December: 




Long
MSFT$110.60$111+$0.40+0.36%

Full Size position



Long
GRUB$82.25$79.05-$3.20-3.89%

Half Size Position



Short
MTCH$39.05$37.99+$1.06+2.71%

Full Size Position



Long
AMD$20.92$20.95+$0.03+0.14%

Half Size Position



Long
CAT$126.55$128.80+$2.25+1.78%

Full Size Position



Short
OIH$17.45$16.68+$0.77+4.41%

Full Size Position



Long
AMZN$1,624.00$1,675.00+$51.00+3.14%

Full Size Position



Long
IWM$142.40$145.50+$3.10+2.18%

Full Size Position



Long
KRE$51.15$49.85-$1.30-2.54%

Full Size Position



Short
SMH$92.40$91.30+$1.10+1.19%

Full Size Position



Long
SQQQ$15.15$16.13+$0.98+6.47%

Full Size Position



Long
MCD$184.75$180.50-$4.25-2.30%

Full Size Position



Short
FB$142.75$140.00+$2.75+1.93%

Full Size Position



Long
TZA$14.10$14.40+$0.30+2.10%

Full Size position



It has been a wild market to say the least... basically a mini version of the 2008 crash in many ways. 

A trader's ability to remain 100% flexible and nimble(in other words, willingness and ability to go SHORT even when you feel market is "oversold") is extremely important. 
Obviously most of the big gains have come from Short positions but that doesn't mean we shouldn't take long positions because some long positions did work in December. 

Most of the AOT trades are what i like to call "Over Night Holds"... these are basically "mini swing trades".... only one trade was a DAY TRADE in December(the FB short trade we made today which was good for a +$2.75 gain!

For example, there are days when i'd walk into a trading day holding 1 long position from previous day.... I'll then analyze the ebb and flow of the market's conditions for that day, then close the long position and go to sidelines for 1 or 2 hours....
then run thru my scans and see piling evidence that the market is getting ready to roll over to downside, I then have no problem getting back on SHORT side as long as the charts are morphing and charts are shifting direction.... A trader's ability to 100% neutral, open minded and flexible in his/her thinking will likely determine what type of a day you're going to have! 

Respecting stop losses is paramount, regardless what you do on that day... always remember, no trader is perfect and no system is perfect. If a trade doesn't work, respect the stop loss and MOVE ON.... 
NO looking back, no regrets, no hindsight thinking. 

Time is moving, the market is moving, setups are moving, trades are moving, you should be moving too! 


MOVE ON TO THE NEXT TRADE and starting hunting again! 

It's not about being BULLISH or BEARISH, it's about being a PREDATOR, constantly stalking and hunting your next prey!  





I hope you found this post helpful! 


Happy trading !!



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