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R LAST-Daily 02/25/2002
Figure 9.8. Ovenure Services Entrj Order
The chart in Figure 9.9 is CACI. The stock is in a four-day rectangle, it has formed a triple bottom, audit is bounded by alarge descending triangle. Based on these conditions, the stock chart is bearish because the rectangle is imbiased, the triple bottom is bearish, and the descending triangle is bearish. Since we have an Acme R entrj, we can simply wait for abreakout in either direction.
Certainly, a trader can have an opinion about a trade, but the opinion means nothing. A market opinion never matters except forthe shameless moneymanagers "talking their book". Either they are stuck in aposition that needs aboost. or they want to sell at a higher price-to you. Be skeptical of market gums who raise their equity weightings in pubhc. Ifthe gum works for amajor investment bank, then all of his or her clients have been clued in the day before, and releasing this news to the public is a chance to unload short-term trading posrtions. For further information about these market gurus, read Niederhoffers hilarious taxonomy of market forecasters.
41.000 40.000 139.000
-37.000 -38.000 3S.000
Figure 9.9. CACI Enhy Order Update
Today is Friday, March 1 We wiU now re\iew each ofthe long and short trade entries from Februarj 26. First, the chart ofEASI is shown in Figure 9.10. As expected, price broke the upper float channel, and the trade was exited within two days. When a stock moves this quickly in two days, profits should be taken on halfofthe position. Later that day, the remaining halfwas stopped out
»SILA8T-D«ity Ol/ai/2002 Acmi
ne Double Bo«omlZ0,4.03,S0)
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:ACILASTJl,i(y Acme Double «« (211 11.3,60 ~
OVER in Figure 9.8, there is an order to sell short 700 shares at 26.375. This is agood chart for several reasons First, the stockis poised to break out ofasm-metrical triangle formed o-er the past several weeks. Second, todays range is only 1.04, a fraction ofthe ATR of 2.87, a good lisk/reward ratio. Finally, the stock gapped down strongly on Februarj 8"", so fear is built into the stock. On a fundamental note, O-erture sold off again after the last pivot high because of a competitive product in the Intemet ad-ertising marketplace.
Remember the chart of Bnsmess Olgects? We thought that this was the weakest chart, but this signal tumed out to be the best trade (Figure 9.1U a testament to our chart reading skills.
Figure 9.11. Business Objects Position
The Acme N short entrj never triggered for OVER, as shown in Figure 9.12 however, it did break out ofits sjminetrical triangle.
l-iKl".-**-- * ><"l . S.-,v...-. I l]>.l II.
CACILASTJlally 03/01/2002 Acme Triple BottemI4D,3,0.3,50)
Figure9.13. CACI OpenPosition
The CACI rectangle in Figure 9.13 triered to the short side wrth both an R and FB signal. After two days, the chart showed conviction in neither direction. Although not shown here, the fohowing day, the trade was stopped out before a three-point mo-e to the inside during a market rahy.
O-erah, the sjstems performed better than our chart analjsis, as is usuahy the case. The two long trades (EASI and BOBJ) were clear winners, supported by the rahy in the Nasdaq. The short trade (CACf) stayed flat during the market re-ersal but was eventuahy a loser. Finahy, the remaining stock (OVER) did not trigger atrade.
Next, we show the trader some inspirational charts in Figures 9.14 and 9.15. In early 2002, Rent-a-Center (RCIkNasdaq) had an exceptional three-month Relative Strength reading of 97. During this period, ah offhe Acme entries were long trades. In June 2001, the Relative Strength of Corporate Executive Board (EXBD:Nasdaq) was 95. Five long snals were generated in a httie c-er a month. Four out of five trades were winners, and two offhe long positions were created with multiple trade entries.
The reason for presenting these charts is to bolster the claim that a traders overall profit fector can be improved by selecting high RS stocks . By using these measures such as RS and KPS, the trading systems presented in this book can be used as a platform to build better systems. Make the systems your own, and you will have the confidence to trade them.
AcmeLX * AcmL)
Acme LEV 1300
4D.D00 4S.D00 44.000
43.000 4Z.D00 41.D00 h40.000 -39.00D -38.000 37.000 -36.000
=XBD LAST-DaJly 0e/12/M01
Aeme LX++ AcmeLX +
iLEV Acme LEN
-39.500 -3800 37.500 h3B.50a 1-35.500 34.500 33.500 32.500
Figure 9.15. Cnrimiiili- IACUitivc lto;ii<l
10 Day Trading
Ai first be like a modest maiden, and tlie enemy will open Ids door; Afterward be as swift as a scurrying rcbit, andtlie enemy will be too late to resistyou.
Sun-tzu, Vie At of Warfare
Welcome to the highly evdved battlefield of electronic day trading, an arena ht-tered with the remains of computers masquerading as slot machines with empty coin hoppeis. A confluence oftechnolcgj and onhne trading created a network of traders with access to real-time quotes, news, and instantaneous executions. As a tide of Uquidity flooded into the market, the technologj stocks soared, and just as quickly the tide went out-along with the fortunes ofmany traders.
At last count, Amazon.com had o-er one hundred books on day trading, bul imfortunately nobody is left to read them. The world probably does not need another Level II tutorial, but in the interest of completeness, every tool has its place. This chapter offers some traditional technical analjsis techniques for day trading and presents some actual trading examples where tools such as Level II quotes have proven to be extremely useful.
Before taking the first trade, follow these steps. Most traders will Ml, and this is not a "you too can succeed in day trading" chapter.
1. Get the proper training ftom a professional mentor. Leam ftom a trader, not a teacher.
2. Choose a professional trading firm that invests in the latest technolcgy and that has excellent customer service.
3. Read the tape and understand the intraday trading cycle. Understand the implications oftrading the open and the close.
4. Trading is a business. Calculate your trading costs and set daily, weekly, and monthly goals based on a conservative retum.
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