The three types of entries are a prerequisite of the third part of the Art of Tape Reading Series. There are three types of entries: Aggressive, Regular, and Conservative. For the sake of saving time, I'll just use a positive market in my examples.
The Aggressive method is most favorable when the general market is up, increasing the odds of a successful setup. This is when you enter before the confirmation of a breakout. A good recent example was my LXK play, where I got in about 30 seconds before the breakout. This is aggressive because if you are wrong, then you will book a loss. I don't think I've ever broken even on an aggressive entry trade when I was wrong. However, if you are right, then this method maximizes your gains more than the other entries. you get in when there is enough liquidity/activity in the price movements and there is a volume spike towards the high of the channel indicating that it may possibly have a chance to break out. Your stop, mental or hard, would be at the bottom of the channel.
The Regular method is favorable during positive to neutral market conditions. It is when you aren't as nearly sure, but there is still a high chance of a breakout. Ideally, you want to get in when a consolidation pattern forms at the top of the channel on the same price/volume characteristics listed for the Aggressive method -or- immediately on the actual breakout itself. This entry's weakness is on fakeouts where you will most likely book a loss and sometimes, breakeven. Your stop would be on the breakdown of the stock from the upper channel to the lower channel. Most of the times, I use this entry because I am able to get in either immediately before confirmation or on the confirming breakout.
The final entry is the Conservative method. This is when you get in after the breakout on the first pullback, usually at the upper channel resistance, which turns into support. The problem with this setup is that sometimes the stock does not pullback for a lengthy time. I use this setup if I am late and actually find it. This entry contains the most confirmation of the other entry methods. If support is tested, then the stock retains it's strength allowing you a "second chance" entry into the stock. This setup is safer because you are not guessing as to whether a stock will breakout or not.
Since everyone's risk tolerance is different, you may want to key in on which entry suits you the best. Experienced traders can perform on all three methods, however, I advise beginners to master one type of entry that best suits your personality before you try to do all three at once.
Today was pretty epic, I'd say. I shorted COH and USO and went long APD, AMTD, and the SPY. It was a no loss day. I'll profile only COH, APD, and USO, since they were more significant than the others, which were scalped for a few pennies.
I'm not sure why, but I didn't focus on my gut too much today. My last scale out in COH told me that I should go with my gut and not leave anything up to chance. For the USO, I covered too early and didn't follow my usual 50%, 25%, 25% scale out. Instead I went 50%/50% and missed an entire leg down with about 2.5%. Not sure how that happened. APD simply broke above the first 1-min price bars high ($68) and I saw the momentum and acted on it.
For the SPY, DIA, QQQQ, and IWM, the most important things here are price action, the high volume, and the hammer that was created. If this is a legit bounce, which I think it is, then we head up to the 100-day MA for a re-test. If not, we resume our adventure to the 200-day MA.
For some reason, yesterday was a good day to trade. What I mean is that doji days are particularly unattractive days for day trading. They are best suited for swing entries. Nonetheless, it was a good day to work on execution and patience, and it all paid off.
Most breakouts require your full attention. Setting alerts is not enough as it is 'too late' many times. Sometimes setting buy stops is not enough because 1) the stock can gap intraday, 2) you can get a bad fill. Some days you watch a movie and other days you stare at your monitors all day long. I can usually tell if it's going to be a good day in the first hour of the morning by looking at the 1-min intra-day price bars. If they don't touch each other, then don't touch it.
The SPX, as mentioned on my show, is being caught in between the 50-day MA and the 100-day MA, both very powerful moving averages main support and resistance levels. We should see an intersection of the 20-day MA with the 50-day MA in the coming days.
I traded 5 names today (all imminent breakout plays): LXK, APKT, BGP, PEIX, and JCI. Ignore the MA's on the 1-min/1-day charts below.
There's a car in front of you and you are trying to determine where it's going, just like how we look at price and volume to predict future movement.
If you look at the diagram above, you'll see an intersection. Now, only when the car reaches the intersection do we have the chance of figuring out the most likely direction the car will go (similar to when we first look at the chart of a stock).
When the car reaches the intersection, it can do several things:
1) Stop at the stop sign and wait. 2) Stop and go straight. 3) Stop and turn right. 4) Stop and turn left. 5) Not stop and speed straight through the intersection. 6) Not stop and turn right. 7) Not stop and turn left. 8) Make an illegal U-turn. 9) Stop and back up into you.
etc...you get my drift.
There are so many possibilities in this illustration. What if the car turns on a left- or right-turn signal, is there a guarantee that the car will turn in that direction? No, of course not. In fact, yesterday, I saw a driver turn on her left-hand signal in the left lane and then turned right, nearly causing an accident which reminded me of this illustration. The stock could go up or down, but is there a continuation?
We all probably busted illegal U-turns at intersections at one time or another. Is it easily predictable? No. I've also seen people accidentally shift in reverse at a red light, hitting the person behind them. Sometimes sudden reversals occur in stocks and if you aren't careful, you could hit or get hit.
Sometimes a car will ignore all the traffic signals and go straight through an intersection, whether intentionally or unintentionally. Sometimes, stocks can make extreme movements, up and down, and we could miss them or get caught on the wrong side. These are usually deadly.
Now let's say that you are in front of a driver that turns on his/her left-turn signal. You are reasonable sure that the next action will result in a left turn. It is the highest probable action the driver in front of you will take. Even still, it is not 100% guaranteed. When you see the car actually make the left turn, your odds significantly increase. You can predict that the driver will make the left turn before the left turn is fully complete.
These are signals that technical analysis produce on stock charts. These are your basic high-probability setups. Technical analysis itself is not enough, though. Ultimately, you are responsible for properly observing the signals you receive and to act in the best way possible according to the highest probable odds.
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Other stuff:
1) The tape reading series will resume this week. 2) The inside day yesterday was executed according to plan. 3) All four indices will be re-testing the 100-day MA. Beware as the 100-day is a strong and reliable MA.
Looks like this morning will start out s an inside day and then honestly, I'm not sure where it'll end. Odds favor it due to the ~20 point range it has on the SPX.
The 100-day MA is the most important MA at the moment. The last time the moving average was it was back in March/April for the SPX, DJIA, and COMP. Prior to that, the 100-day MA was hit in mid-2008 and there was always a major market move that followed. This puts the odds for a move to the 200-day MA as the 'most likely' scenario. In addition, note the textbook breakdown from the rising wedge and how each correction became larger and sharper up to this point.
