How We Traded This Week's Market

Hey folks! 

I wanted to do a 'STEP-BY-STEP' educational post to explain what I was seeing through out this week's insanely wild market action and how we traded to end up making it a profitable week for AOT members! 

So here goes.... 

So as we all already by now... The market gapped up almost 400 Dow pts on Monday morning after the "successful" G20 meeting between the U.S. and China... 

We came into Monday long MSFT from $110.60 entry since on Friday it formed a very nice "INSIDE DAY" pattern... 

Here's how I normally like to trade INSIDE DAY patterns: Learn to spot these since they can be a very effective pattern to add to your trading arsenal! 

That MSFT chart was begging to BREAKOUT! 

Thus felt very comfortable swinging MSFT into Monday from Friday's entry especially since it literally closed at the highest tick of the day on Friday's close..... 

**** FAST FORWARD TO MONDAY MORNING ****

Come Monday morning, index futures were VERY nicely green and thus feeling very good about the odds of a big gap up on Monday for our MSFT long position....

And it did indeed gap up on Monday... MSFT gapped up over +$2 on Monday's open so we quickly raised stops to ensure at least a GREEN TRADE just in case the market decides to reverse back down...

We raised stops to $111.00. Shortly after the big gap up open, the indices started to fade lower slightly and took out our MSFT for a small gain of +40 cents. 

Sometimes it can be hard to not get frustrated when you see a stock up over +$2 in your favor and then get stopped out for a much smaller gain... but this is trading! Better get used to it and learn to move on methodically to the NEXT trade!  

Green is green and we move on to the next trade! 

While scanning for new setups on Monday afternoon, GRUB caught my attention as it was setting up in a very nice FALLING WEDGE bottoming pattern.... These types of patterns normally breakout nicely higher... 

As much as I liked that GRUB Falling Wedge setup, but since the market made a big multi-day run up ... we went into GRUB with a only a HALF SIZE position size ....  

Trade started to work nicely so felt comfortable swinging it over night especially since the trade was only HALF SIZE and also started to work nicely soon after we entered the long position.... GRUB closed the Monday session about +50 cents higher from our entry... 

****Fast Forward to Tuesday morning****

The next day, the market opened kinda soft and looked suspect on long side.... 

Our GRUB long position opened green and the trade looked promising since it was showing "relative strength" early in the morning since the market was slightly lower yet GRUB was green and trying to breakout from that FALLING WEDGE pattern.... 

Look at the VXX(VIX) chart below... On Tuesday morning, it was actually RED as the overall market was slightly red which normally favors the bulls.... 

Literally two hours later... the VIX EXPLODED higher at first seemingly on NO NEWS... the market collapsed lower and of course took out our GRUB long position with it. We stopped out of that HALF SIZE long position in GRUB for a -3.8% loss. Thankfully it was a smaller position so the loss wasn't too bad. 

When it comes to trading, POSITION SIZE MATTERS!! 

Can't repeat this enough times, POSITION SIZE MATTERS!!  

Tuesday, around mid-day, there was starting to be doubts about the so-called "successful" G20 meeting... Algos wasted NO TIME, like they ALWAYS do, they SELL OFF HARD FIRST and ASK QUESTIONS LATER... this is what algos do. They are programmed to react to news and more often than not, the moves are FAST, BIG and DRAMATIC! 

At this point, we were back to sitting on 100% cash and stalking new entries

MTCH, started to catch my eyes as a very nice SHORT setup so we entered MTCH short on Tuesday mid-day and the trade literally started to work almost immediately.... 

We entered MTCH short at $39.05 and the trade started to work lower immediately .... 

This was setup that was tweeted/emailed to all AOT members ... 

The market closed on its lows on Tuesday(Dow closed down about 800 pts) but the NYMO was just coming off "overbought" territory so i was very confident that today, the market would GAP DOWN at the open and even mentioned it in the private twitter a couple of times. So decided to swing MTCH short into today, fully anticipating the market to gap down and take MTCH lower with it.... 

As you can see below, MTCH did indeed fall nicely at the open as the market(Dow Jones fell about 500 pts) at the open... Brutal nasty gap down open... obviously, exactly what you want to see when you're holding a short position! 

MTCH hit $37.00 on today's open, we shorted at $39.00 so the trade was up a cool +5% since we entered... 

 Read chart notes above to see the STEP-BY-STEP thought process behind the MTCH intra-day action today and on Tuesday! 

***** FAST FORWARD TO TODAY around MID-DAY*****

Market was tanking hard, sentiment was piss-poor and you can almost "feel" the sentiment on twitter... Traders were discouraged as sentiment turned so sour... People losing faith in stocks as legendary hedge fund manager, Leon Cooperman was saying live on CNBC around mid-day... 

At this point, i had closed that MTCH short for a +2.75% gain and turned off my twitter and and was intensely focused on plowing thru my charts(both indices and individual stocks watchlists) to gauge the "market's temperature" under the surface...  

Public twitter was OFF at this time as i didn't want my market views or chart analysis to be "tainted" by anyone or anything... I wanted to observe the action and movement of the charts in an absolute "vacuum" if you will....   

What are my charts doing right now? 

What are these charts trying to do? 

What are they trying to do here?

Wait a minute... closed MTCH short but what's MTCH looking like now?!   I'm just curious! 

Holy mother of god!!! Look at what that MTCH short is doing now!  I'm like, "OK, good call on closing that short, Stewie!"

Like i always like to say, "Short squeezes are like cockroaches, when you see one, there's usually a bunch more around the corner!"

So, I'm thinking, well if stocks like MTCH are starting to gap down and SQUEEZE or REVERSE back higher... what else is doing that?! 

AMZN? check! 

NFLX? check!

AMD? check! 

GOOGL? check! 

etc etc etc .... I'm now seeing the Dow Jones and other indices still dancing around near the day's lows(we're now down almost 700 pts on the Dow Jones and down 1,700 points in two days!!) yet many stocks on my PEG(Power Earnings Gap) list are flat or green?! 

How's that possible?! 

I start plowing thru my charts again... and again... and again... obsessively determined to figure this enigma out!

Meanwhile I'm still answering AOT members' questions via the private twitter! 

Doing 'Chart Requests' and responding to emails that are coming in at a faster pace than usual due to the volatile market! ... most people don't see the "behind the scenes" work that I put in on a DAILY basis! 

but you know what?! I love it, i often feel like it's "my calling" and can't do without it! 

Around 12PM to 12:30PM(mid-day Thursday)

***These next series of charts started to catch my attention*** 

Dow Jones Chart

KRE Daily Chart

What i'm seeing in the ABOVE two charts(KRE and Dow Jones) and actually many other index charts which i didn't post in this post but the basic premise is all the same!! 

MACD and RSI divergences: this is the simple yet SO reliable situation when PRICE does one thing yet the RSI and MACD do the exact opposite! So in this case, indices were tanking to retest the October lows yet the MACD and RSI were well above the October lows and making HIGHER LOWS which creates a "divergence"... so in today's case, that's called a BULLISH or positive RSI and MACD divergence! 

These divergences are what creates TRADING OPPORTUNITIES! Top notch trading opportunities to the traders who know how to spot it and remain cool, calm and collected enough to execute the trades once the signal is there... set the stop loss(es) and let the price action go from there!  

AMD Daily chart

CAT daily chart

CAT intra-day chart and STEP-BY-STEP thought process 

The thought process and execution of these trades went hand-in-hand with my trading system and my trading style and that's what every trader strives to do, day in and day out... 

****The Next morning, Friday****

The market attempted a Follow-Thru rally from Thursday's big reversal.... but that early morning rally was very weak, meager and highly suspect since most of the stocks on my watchlist were RED despite the indices making a bounce attempt(basically exact opposite of the prior day!) 

We raised stops on our AMD and CAT long positions to ensure we at least exit with gains in case the market rolled over again. 

Remember, in this kind of market, you have to be flexible and be ready for ALL outcomes. 

We stopped out AMD at $20.95 (+0.15% gain). 

Quickly raised stops on CAT and stopped out for a +$2.30 gain(+1.80% gain).  

At this point, we are back sitting on 100% cash and on sidelines, stalking new entries as we slowly watched the market's early morning bounce attempt slowly fade to red as sellers once again reasserting their dominance... 

While scanning for new setups around mid-day on Friday, OIH caught my attention as a very nice SHORT SETUP... 

It made a nice gap up at the open on some news out of OPEC but the bounce looked weak and counter-trending in nature. 

Here's what I see in USO right now... a strong, persistent downtrend in this name with buyers nowhere to be seen and usually selling on any sort of bounce... Last few days, USO has tried to bounce but with each "bounce day" looking like a "Distribution day" instead(strong high volume selling).... 

As of of the writing of this post, that OIH short position is +3.25% since our entry and we are actually swinging it into Monday since OIH closed on the day's lows, felt comfortable swinging this position since we built a big enough cushion on the trade(and we lowered the OIH stop loss to $17.40 as we approached the close on Friday). 

We made 6 trades this week: 

MSFT long (Normal size position) : +0.36% gain

GRUB long (Half Size position) : -3.85% loss (or -1.9% of a Normal Size position)

MTCH short (Normal Size position) : +2.75% gain

AMD long (Half Size position) : +0.15% gain

CAT long (Normal Size position) : +1.80% gain

OIH short (Normal Size position) : +4.50% (Update: closed OIH trade on Monday Dec. 12th)

The Dow Jones moved up and/or down 600 to 700 points almost every day this week, therefore a trader's ability to be nimble, flexible and OPEN MINDED is vital in this kind of market. 

Money can be made on LONG side and SHORT side... 

A trader's ability to ADAPT to a rallying or falling market is very important since the moves can be so dramatic in either up or down! 

Some of the feedback i got this week from AOT members was truly humbling. This kind of feedback is the BIGGEST driving force behind AOT! 

Stewie,

I wanted to start by thanking you for your diligence with researching and teaching. It has been immensely helpful with such a crazy market right now; not to mention the knowledge I have gained to apply to my trades when we finally do find a bull market(and I’m still new).  I have been a subscriber to AOT since the start of September, and plan to be a member as long as you are at the helm of the ship! I make sure to save every educational post you write up, and soak up all the information I can on your AOT website. On a given day I will spend anywhere from 1-5 hours charting, reading, and studying various aspects of the market, but consistently your materials are my primary focus.

Near the end of yesterday’s session, I almost bought some AMD Calls to hold through the night, but reminded myself ‘Don't chase, and there will be other opportunities tomorrow’. - This mindset was instilled by you. On to this morning; I still wanted to buy those AMD calls, to not miss out on any profits; LITERALLY THE MOMENT that I went to execute my purchase you posted not to rush today and to let stocks play out. Instead of purchasing call options on AMD, I held off until after your OIH trade alert to go short. I then bought some OIH Put’s and sold them two hours later for 67% profit! (AMD dropped HARD only moments after you suggested holding off, which would have resulted in a loss for me on that one) This is just one example of when I thought a trade seemed like a good idea, then I exercised your methods and profited rather than lost out on the trade I had planned on.

Moral of the story: Instead of going into the weekend angry with my decision to rush and chase AMD, I profited on my only trade of the day and am going into the weekend 100% cash, after a 67% win in today’s trade! I am only in my eighth month of investing/trading and joining AOT is a HUGE game changer. I feel comfortable looking at charts and even feeling the 'vibes' they are giving off. I am looking forward to learning more as time goes on, and felt it necessary to fill you in on how your teachings effect your students.  So thank you for your guidance and wisdom you share, and I am looking forward to future posts you share!!

Have a great weekend and thanks again Coach!

Mike W. 

I hope you found this post helpful and educational! 

Happy trading !!

ArtOfTrading.net 

How to Use RSI and MACD Divergences to Spot Big Reversals

Hey folks, 

I wanted to do an EDUCATIONAL post on how and why SPY and QQQ rallied so hard on Thursday and why i was so convinced the market would rally hard despite the market's initial very big gap down open on Thursday morning. 

As many of you who were following my tweets on the @AOTtrades private feed and also on @TraderStewie public feed, i was very bullish on that day and I'm going to walk you thru it, STEP BY STEP.... 

Ok, so coming into Thursday morning, we were already long NFLX and FB.... so coming into Thursday's open, the market was gapping down big at the open due to some new "Tariffs news" blah blah blah....... Remember, the news is almost always irrelevant, it's the REACTION TO THE NEWS, that interests me most!

***Coming into the day, the Dow Jones was going to open down about 175 points, SPX was opening down 20 points*** 

Ahead of the open, i took out my "SPY Road Map" chart(see below) to see where we were going to open.... 

I quickly noticed that SPY was opening down near the $279 area which has been strong support on numerous recent tests.... 

However, what made today's weak open so interesting so that not, only was it opening at exactly the $279 support area but also, that the RSI and MACD indicators were HIGHER  than the previous time SPY tested the $279 area... since RSI and MACD were higher than the previous time, that right away told me, they were making a HIGHER LOW hence telling me, that today's down open is WEAK and UNSUSTAINABLE therefore odds of an upside reversal were very high..... 

I actually tweeted this out shortly after the open: 

"Today is a good test for the $SPY, $QQQ... as they RETEST support.... Note... ..on this RETEST, we need to watch how the MACD and RSI behave here... if RSI and MACD continue to form a HIGHER LOW as $SPY, $QQQ retests support, odds increase for a strong bounce phase soon."

A few minutes after the open, SPY, QQQ started to bounce, they wasted no time... so that increased my confidence that a big reversal and rally day was brewing here.... 

Note the mini HAMMER candle in the above SPY chart shortly after the gap down open and right off $279 support.... the RSI and MACD higher lows were very visible at thus point and firming up even more aggressively... 

A few minutes after the open... i started to notice many of the big stocks started to reverse to green, despite the overall market still well in the RED.... Stocks like FB, MSFT, GOOGL, NFLX were starting to go from RED to GREEN... that's when my confidence of a reversal went from 75% to 99% !! 

... and that's when I tweeted this out ... 

"$SPY bouncing here as RSI and MACD are carving out a HIGHER LOW .... This is setting up for a wicked bounce...."

....At this point, SPY was pretty much almost FLAT(see chart below).... while the clear cut leader was QQQ....

Meanwhile, i noticed that "trader sentiment" on twitter was still surprisingly bearish or skeptical at best(not many bulls), which only further increased my confidence that this rally day was only getting started and that's when i tweeted this out.... 

"$SPY ... up a cool +$1.5 since this posting tweet/chart and i suspect, this could be just starting!"

Note the STRAIGHT UP move in QQQ after the initial gap down open.... 

....Fast Forward a few hours later.... 

Our NFLX position was up a good +$8 points since our entry and FB was up $6 since our entry .... 

SPY was now up a good +$3(see chart above) since tweeting out the first SPY chart with the RSI and MACD bullish divergences playing a key role in pinpointing a reversal and rally.... 

I tweeted out this: 

"How bout that $SPY chart, folks?! Up almost +$3 since posting this SPY chart at the open! Learn to spot those RSI + MACD divergences! Especially on indices, this pattern is as strong a buy signal as you ever gonna get!"

This is 100% true, LEARN TO SPOT these RSI and MACD divergences on the indices!! 

 

RSI and MACD bullish divergences are as strong a "BUY signal" as you're ever gonna get, especially when you're analyzing the indices.... 

I hope this educational post will help you spot these divergences going forward!! 

Happy Trading!  

Join the ART OF TRADING community today! 

How To Swing Trade A Falling Wedge

Hey folks,

I wanted to share a STEP BY STEP trade analysis on a swing trade we did at the ART OF TRADING service.

In this post I'll explain HOW and WHY we bought and sold XIV to book a nice +7.4% gain in only 3 days!


Last week was a volatile and rather bearish week for the overall stock market. Sentiment turned quite negative as market took a pretty good whack. My game plan for the week was to look to "BUY THE FEAR" but wasn't gonna "blindly" buy and hope I was right. I needed a good technical signal with clear ENTRY and EXIT levels in case the trade falters.

But first I wanna show you what a basic "Falling Wedge" pattern looks like:

I like to trade Falling Wedges in stocks or in this case ETFs that are overall TRENDING UP and are pulling back in the form of a "Falling Wedge" pattern. So I am NOT looking to buy falling wedges in stocks that was previously trending DOWN!! That's a big NO-NO!
Remember, swing traders want to buy pullbacks in stocks/ETFs that are TRENDING HIGHER, not DOWN.

So I spotted these nice intra day Falling Wedge patterns in QQQ, IWM and SPY on Thursday(Sept 15th) as "doom and gloom" was the theme of the day on CNBC/twitter etc, following an ugly 3-4 day selloff that was triggered from jaw-boning by a FED member.
Remember, ALL that is NOISE!

As traders, we must tune out this "noise" and ONLY follow the PRICE ACTION!

Here's the Falling Wedge I spotted and actually shared these charts on twitter as well ....

So I noticed the Falling Wedges started to emerge on the 5 minute charts after a 4 day selloff, but more than importantly, notice that the RSI and the MACD were making HIGHER LOWS as the PRICE ACTION was making a LOWER LOW.... This is a hugely bullish signal and i'm always very interested in LONGS when I see this. Remember this! Train your eyes to spot them HIGEHR LOWS on MACD/RSI versus price action... Practice makes perfect!

So seeing this wedge and the strong bullish signal, ART OF TRADING members were issued a BUY alert via email/twitter/SMS for XIV long.
We entered XIV long at $32.60 and used $31.20 stop loss(stop loss was placed just below the Falling Wedge lows). A break of these lows and the trade would have failed, hence we need to take a loss if it happened. Winning traders take losses when they have to, DISCIPLINE is the name of the game.

Note on the below 30 minute chart, the price action made a 'HIGHER LOW' around the same time QQQ, IWM, SPY were pinching at the apex of those highlighted Falling Wedge patterns.
That's important as we are already seeing hints that XIV wants to reverse...
HIGHER LOWS are often the start of a bigger upside reversal.

 Note : in the chart below, the Nasdaq also made a HIGHER LOW at the same time, indicating relative strength in the Nasdaq/QQQ. This was yet another very bullish signal.

Here's how the charts are looking 3 days later....

....(On Sept. 15th at 11:15AM)....

We entered XIV long at $32.60 and sold it today at $35.00 using a trailing stop method.

We closed XIV for a +$2.40 or 7.4% gain!!

We kept walking up our stop losses and allowed the price action to dictate our next course of action, NOT the noise.

I hope you found this post helpful!

All comments, feedback or questions are welcomed!

You can tweet me or email me : Traderstewie@gmail.com

Happy trading !!

ART OF TRADING