Stocks to watch tomorrow.

DTG (A Long), PCLN (B Long), CMG (A Long), AKAM (A long) and PWER (A long). AMRC and BORN are still buyable.

Broken leaders?

Al three stocks were members of the IBD 100 at some point in the Bull Market that started in March 09. Now all three of them are breaking down from head and shoulders topping patterns on heavy volume mean while the overall markets are also acting rather weak. Potential shorts? I am waiting for some sort of "feeble" bounce in the markets to short these stocks in the vicinity of their 50 day MA's as well as major overhead resistance.

Bearish day!

The two IPO's I had on my watch list today triggered but only AMRC managed to closed positive while BORN closed below its opening price. BORN although negative on the day and AMRC are both far away from their pivot lows (and suggested stop out points). So if you are long of them I would suggest holding them until they violate these levels or until the Russell 2000 closes below the 590 level on volume. Please note, I did not enter any positions today.

Although all in all today was rather bearish, I do not believe that this one day should worry anyone long too much expect for perhaps taking a piece of their position off. I still believe that the markets are due a decent bounce at these levels.

Further adjustments needed...

In the past, I have had a tendency to not do my homework and stop searching or even ignoring stocks I saw setting up whenever my account has been fully invested. I have realized that this has caused me to miss out on some big performers.

I have decided that I need to make an adjustment to my trading in this regard. What I will do is to make sure that I maintain the same intensity with my "homework". Then instead of ignoring new setups, I will evaluate the quality of the potential trades against the ones I am currently in. This information I will then use to decided whether or not to swap some of the under performing trades for set ups that may out perform. Instead of blinding ignoring new trades because I am fully invested.

Importance of stock selection!

Both of these stocks bottomed out at the same time along with the overall markets around the start of July. However, where as DTG is only up about 17% from the bottom, JKS is up over 150% from the bottom (yellow arrows). I entered DTG after its first pullback at $46.00 and got out just below $50.00 for a decent profit relative to risk since my stop loss was at $45.00. Although JKS had shown it self to be a far superior stock to DTG and offered three seperate entry opportunities (all of which went on to outperform the entire move in DTG) ; I passed on all of them and missed out on serious profits.

This is one area of my trading that I have been thinking deeply about and battling with ever since I first started trading. The tendency to pass on the true leading stocks which "appear overbought" in favour of the substandard leaders that have not yet begun to move and "appear to have a lot of upside in them". This has cost me a lot in the past 9 months and I am working to improve this.

Getting better at trading requires one to accept that they will never be perfect and hence that constant self evaluation is needed. This process has helped me to become a profitable trader for the first time this year and will help me to become even better (example, the lesson learnt above and in the post "In this market...hit singles not home runs!"

Trade management and expectation for follow through.

I recall how during May and June, CRUS set up beautifully (high volume thrust with low volume pause close to 20 day MA) several times. I was afraid to trade CRUS because of the overall down trend in the markets and rightly so! However, I do know from my few years of trading experience that it is also OK to be a bull in a bear market if you know what you are doing!

Every time I enter a trade I am always looking for a 50% to 100% up move. In fact, I have entered several stocks at the start of such moves but never caught more than a 30% move in any single trade. But this is a different issue as this delves into my pre-trade planning (including an exit strategy that will catch the big waves), sticking with my plan during the trade (which I suck at horribly) and repeating hundreds of times consistently (I suck at this too but I have still managed to make money....makes me wonder how much I will make when I get more disciplined...can you say MILLIONS!!!). There would certainly be a few 100% plus moves scattered some where in there.

However, what I wanted to focus on was market conditions and expectations for follow through. Had I been looking at the set ups in CRUS in a bull market then I would certainly have traded them aggressively and would have likely made money. However, because I was a in a bear market I passed. What I have realized in retrospect is that I should have taken these trades but with a much lower expectation for profit and consequently adjusted my take profit strategy!

I have already outlined my plans for when I have low expectations for follow through in the post entitled "

In this market...hit singles not home runs!

". Had I used this trade management strategy I would have made money in CRUS, CSTR and the handful of other stocks that had met my long set up criteria during the sell off.

Now I am very bullish on the markets for reasons outlined in the post "

My stance on the markets and trade ideas for next week".

Although one can reasonable argue that since we are below the 200 day MA, my expectation for follow through should still be low; I do not believe so. The markets were declining violently on heavy volume as was the case for much of May and June but now they have settled nicely with lots of stocks (like RDWR, PAY and SPRD) currently forming and breaking out of well formed bases on huge volume. We have already seen one monster stock: JKS increase over 100% in under two months since the market bottom in early July. I am of the belief that others like BORN, ARMC, PWER, RDWR and PAY will follow its lead. Not only am I seeing alot of bullish price action, I am seeing very few stocks break support and follow through! This is what happens in a bear market and was what I had expected to see after the markets broke down from a wedge and sold off hard on the 13th of August.

So having taken all these factors into consideration, I have decided that I will trade BORN and ARMC aggressively if I get triggered tomorrow. That is, instead of following the conservative method I outlined in the post highlighted above ( in this market...hit singles not home runs!); I will hold onto my initial position and look to pyramid on subsequent set ups in the stocks since I now have moderate to high expectations for follow through as opposed to very low expectations as was the case for May and much of June.

I hope you find this post useful in your own trading.

Good luck and good trading!

Interesting set up in AMRC...

At a potential inflection point in the markets, AMRC appears poised to bounce a few dollars in exchange for about $0.50 risk. Nice set up in a new hot IPO. I would definitely rank this as an A trade and put on max. risk for a swing trade exiting 75% at 3x risk and holding the remainder until it violates either the initial stop or a take profit stop (as outlined in previous post).

Good luck and good trading!

My stance on the markets and trade ideas for next week.

At this moment I am very bullish on the stock markets.

The T2108 is below 50 and reversing. The Sp-500 is at significant support and reversing on volume. It also appears very extended and poised for some sort of rally; whether a few days or a few weeks, I do not know. But this does not matter since with my "new trade management" strategy outlined in the previous post, I will likely lock in 2x risk on the real movers. So I have very strong conviction on the long side for the short to intermediate term.

In terms of individual stocks, I am looking at PWER, DTG, BIDU, PCLN, BORN and DDIC. I rate DTG, PWER, BIDU and BORN as "A" trades because relative to the risk I will put on I believe that these trades have the potential to produce gains well in excess of 3x risk and better overall expectancy than the swing trades I tend to take. So on these trades I will risk about 2.5% of my account on each. I believe that BORN in particular is a really top draw set up. The kind of trade that can make your year. So when I get set ups like BORN I often push the throttle a little further and risk as much 3% of my account off the bat.

PCLN on the other hand I rank as a "B" trade. PCLN is already quite extended, although it might still have a lot of upside, my expectation for gains on these trades is much lower than on the A trades and I will not risk more than 2% of my account on this trade. DDIC, I rate as a "C" trade. It is currently below the 50 day MA and has significant over head resistance at the $10.00 level. These trades have little room for error and so it is quite easy to get hit with a string of losers from these types of trades. Hence I will cap risk on this trade at 1.5%.

So those are the trades and plans I have for next week.

Good luck with your trading!

In this market...hit singles not home runs!

Current market conditions call for adjustment to trade management strategy. Because of the range bound nature of the markets expectation for follow through in individual stocks has been reduced dramatically.

While I believe it is important to remain consistent with per trade risk; trade management must change according to market conditions. In fact, this could mean the difference between grinding out profits or drawing down your account.

In bull market conditions (SP500 generally above 200 day MA), my expectation for follow through on long trades is very high. So I would generally look to add if I get a valid second buy point and to let trades play out and exit on the break of a trend line (if obvious), break of 30 day SMA, break of pivot low or parabolic move up with my full starting position. And vice versa for short trades in a bear market.

Where as that aggression will likely be rewarded in a trending market; in the current markets one could end up with severe draw downs. So I have decided to combat this problem by looking to scale out of trades instead of exit all at once or even looking to add to trades.

My plan for longs and shorts in this market is to take 75% of the trade off at 3x risk and then exiting the remainder according to the rules I outlined above. This way I have more staying power for the few trades that end up going on to make significant moves and with winning trades the worst case scenario will be a profit of 2x risk [(0.75 x 3R - 0.25 x 1R) = 2R]. So if I can only manage to win on 3 in 10 trades during tough markets like we have now then I can still break even!

In none trending markets, defense is King not aggression!

Hope you find this useful.

My new blog...

I recently decided to start mentoring and training with the Keystone Trading Group. As a result I decided that I would discontinue my previous blog: http://parttimeswingtrader.blogspot.com. I thought that I would not have been able to sustain my new endeavors as well as blogging. However, the truth of the matter is this; I miss blogging!

It gives me something to look forward to, a challenge and it forces me to think deeply about my trading at all times. Also it is quite lonely when you come up with exciting ideas and have no one to share them with.

My trading account which I grew from $4,000.00 to roughly $5,500.00 during the first half of this year has been dramatically reduced. I removed $5,000.00 to finance my training with Keystone and now about $500.00 remains. I thought of abandoning my personal trading for a while but I am missing too many opportunities. I also believe that there are very few systems that can outperform my own. However, limited access to capital means I cannot support myself from my trading efforts hence the reason why I joined Keystone.

Until I get my account back to a respectable level, I will continue to share my ideas and thoughts on the market on this blog and take few trades every now and again. I will share my bias and stocks I am looking at in my next post.

Until then, enjoy your weekend!