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!
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!
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 !!
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