Anatomy of some trades - 2/15/2000

A number of users have asked for further trading examples.  We will discuss the things to look for when entering a trade.  Trade management (trailing stops, etc.) are not discussed here at this time (we will do so in a future discussion).  But readers should be able to overlay their own trade management techniques on the charts to evaluate their effectiveness in each of these situations.  The point gains/losses shown in below are based on the use of effective trade and exit management techniques.

The sample stocks shown below were chosen from several indicator groups including the volatility groups, trading index, and momentum.  A couple of stocks that were not on indicator groups are also shown in order to discuss the mechanics of trading your favorite stocks regardless of whether they appear on one of Trade Prospector's indicator groups.    Below we have tried to dissect the anatomy of several trades from today.   On all charts, the following line color scheme applies:

AMCC

This stock topped the daytrading index.  The chart below presents the 5-minute bar chart with key boundaries and SRs shown:

The stock bottomed out just inside the 212.8 upper trading channel boundary and when it popped back to the upside was a long entry trigger.

For the aggressive trader, the upward breach of SR3 at 220.1 was another long trigger.   The subsequent downward breach of SR3 was a quick a short trigger.  And the following upward breach again of SR3 was yet another long trigger.

The stock ran all the way through the upper breakpoint boundary at 236.8 and would have been closed prior to market close.

VERT

This stock topped the volatility compression group.  The chart below presents the 5-minute bar chart with key boundaries and SRs shown:

The stock briefly rallied through SR3 at 206.6 and then crashed back through it finally breaching the lower breakpoint boundary at 198.6.  Notice that the intraday SR below 197 held up the price action on three seperate occassions.  Breakout traders should have shorted on the breach of the 198.6 boundary each of the four times picking up 1-2 points each time.  Aggressive traders would have initially gone long at the upward breach of SR3 and managed to keep about 1 point before the price fell back through SR3.   This would have triggered aggressive traders short and they would have closed the short for between 5 and 10 points depending on their trade management technique.

ITWO

This stock appeared in more than one group.  The chart below presents the 5-minute bar chart with key boundaries and SRs shown:

The stock momentarily poked its head above SR3 at 258.3 at at the open and then sold off.  It fell through the upper trading channel boundary at 247.3 and settled near a cluster of SRs near 233.  Aggressive traders would have shorted on the reversal at SR3 and closed when the support zone near 233 held up for 20-25 points.  Breakout traders would have waited for the upward breach of the upper trading channel boundary and closed before market close with 3-6 points.

CMRC

This stock appeared on the volatility indicator groups.  The chart below presents the 5-minute chart with key boundaries and SRs shown:

Given the close proximity of the lower trading channel boundary to SR3, even aggressive traders would have waited for a confirmed breach of the trading channel rather than going short at SR3.  In this case, the lower trading channel held as support and the price action bounced back up, subsequently bouncing off the upper breakpoint 160.9 and again testing the lower trading channel boundary at 156.9  Upon finally succeeding in breaching the upper breakpoint, a long trade is triggered and it continues up to 8 1/2 points further.

CRA

This stock appeared on several indicator groups.  The chart below presents the 5-minute chart with key boundaries and SRs shown:

The SR3/upper trading channel cluster at 247.4 proved strong attraction for most of the morning and would have triggered traders in and out of positions for between fractional losses and several point gains depending on how they managed the trade.  Due to the oscillation around this key support/resistance zone, traders would ultimately have widened the entry zone to either 250 or the upper breakpoint boundary at 252.7.  Upon finally breaching these to the upside, the price action ran through two SRs producing between 7 and 20 points profit.

SPY

The SPDRs are a favorite surrogate for trading the S&P500 index.  The chart below presents the 5-minute chart with key boundaries and SRs shown:

SR3 proved (as it often does) to be a strongly attractive support/resistance level.   Upon breaching SR3 at 139.2 to the downside, aggressive traders would have shorted and initially picked up fractional gains.  When the price bounced off the lower breakpoint boundary at 138.5 and again touched SR3, aggressive traders would have again shorted - this time for about 1 1/2 points.  Due to the obvious resistance of SR3, traders would have expanded the long entry zone and waited for the breach of the upper breakpoint boundary at 139.9 which would have produced another 1 point trade.

YHOO

Another favorite stock to trade.  The chart below presents the 5-minute chart with key boundaries and SRs shown:

YHOO fell through the lower breakpoint boundary at 162.8 to trigger shorts and bottomed at the SR near 156 for 6 points.  When the stock retraced back north, aggressive traders may have risked a reversal upon the upward breach of the 162.8 boundary or of SR3 at 167.7 producing between 5 and 10 points profit.

Copyright 2000, by Third Millennium Trading.  All rights reserved.  This information is proprietary and reserved for the personal use of Trade Prospector users and registrants.  No other use is permitted without the express authorization of Third Millennium Trading.

Disclaimer: Third Millennium Trading does not recommend the purchase or short sale of any stocks.  Trading should be based on your own understanding of market conditions, price patterns and risk.  The information presented here is designed to contribute to your understanding. Controlling risk through the use of protective stops is critical (more).