Reminder: Harlan is available to chat with Members, comments are found below each post.
Courtesy of David of All About Trends
Yesterday we said:
And sure enough the indexes stopped cold at the 20 day average which isn’t out of line as its a support level. For us to get an upside reaction off of it AFTER the markets got slammed hard the last few days isn’t out of line either. Again the question we find ourselves facing is whether or not that was it to the downside or we’ve got a little bit more work to do.
I’m leaning toward we have a bit more work to the downside to do here Uncle Ben or not as the charts below are showing that of a POTENTIAL ABC Pullback Off Highs (POH) brewing with A and today’s action being B with C yet to rear its head.
In a lot of the individual name charts in this update we’ve included the short term one minute charts and a ton of them show the same thing as the indexes here so that makes us wake up and take notice.
Now if we are going to see a C wave to the downside? Its a face of fear and yes we will be buying stocks on that potentiality. Be prepared! Don’t forget we’ve talked about this numerous times about having the gun loaded in advance and this is an advance notice.
11-3 And this is still where we find ourselves. So far though we are holding the 20 day average just like we talked about in advance. So does that mean we should rush out and jump in? Nope because how do you know how long its going to last. Besides check out what the index charts are saying right here. And given we are what looks to be in the process of filling some recent downside gaps? We’ll sit back and take our time. The last thing we want to do is step into a reactionary environment based upon the news of the hour, we miss em we miss em. More often than not from experience I’ve learned you get a lot of second chances had you just sat back and allowed them to come to you and that’s what we are doing. I think they call that the art of allowing.
Yesterday we touched upon a potential ABC down pattern building and even with today’s action that has not changed as shown below. So lets let them come to us. If the names on our longside watch list don’t? The relax as there will be other names that will.
Short Term One Minute Charts
60 Minute Time Frequency Charts
Note: Make sure you read the red notes in each chart about the Full Stoh’s.
Its early in the month still and plenty of time to reach your goals for the month regardless of who you are and who you choose to be as an investor or trader. Its really all up to YOU.
Current Game Plan
So here is the bottom line through year end. We buy weakness and we’ll use the 50-day average to define our risk once in a position. We’ll also want to try to be investors (longer term) and hang on to some thru end of year or thereabouts. As for trading here too we’ll want to do some hit and runs while at the same time holding a position for the longer into year end push. Said another way? Keep a core position and trade around with some too.
Keep in mind some names will pullback and others won’t. There is a strong possibility that we’ll start seeing names trade to the beat of their own drum from here and we can start to selectively nibble all along here on the long side.
SHORT SIDE WATCH LIST
11-3 those looking for a potential hit and run scalp on the short side check out this one minute chart of CAT here. Could be one of those get your $200.00 and go type names.
Don’t be surprised to see us sell 200 shares short right after this mid day update gets sent.
LONG SIDE WATCH LIST
"Only The Best And Forget The Rest "
"We Trade What We SEE, NOT What We Think, Hear Or Fear "
10-30 Recently we’ve been highlighting the SNDK chart below as a first thrust up example. This weekend lets use it as an example of "What We Need To See To Make Us Take A Trade" on the long side.
In simplest terms? From here on out it’s all about Pullbacks Off Highs (POH) long side trade triggers. In uptrending markets they are the only pattern you’ll ever need to know.
10-31 As you will see below every name on this list is doing exactly what its supposed to be doing and that is starting to pullback. How long it lasts nobody knows but the names we like are getting cheaper and our risk is being reduced for near term future entries. Sit back, let them come to you and that is what we are doing today and hopefully for the next few days.
FOSL
NEW NAME
FRAN
NEW NAME
11-3 OH WELL. If it comes back down we’ll look at it. Same goes for RP below. Think Buy on weakness
RP
NEW NAME
RAX
NEW NAME
AMZN
11-3 Still needs some sort of pullback to get me interested as there is a lot of thin air from here to the 200 day zone. Weakness folks, its what we are looking for, meaningful weakness of a few days. That pretty much goes for just about everything out there.
NUAN
11-3 Need to see some sort of meaningful weakness.
CRM
VMW
10-28 Those pink ABC lines are also what we want to see. We bring this up because the A wave up is the first thrust, the B wave is the POH.
BIDU
11-2 Overall I’m not impressed with the wide loose sloppiness of this issue vs other out there I see with tighter patterns.
11-1 This issue isn’t tagging the 20 day like many of the others its at the 50 day. Its a wild stock and prone to big moves. We aren’t sure what to do with it just yet but we’ll keep it on the list for a bit.
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FEATURED BUT NOT TRADE TRIGGERED BY US LIST
GLD
OIH
11-3 This index actually came down and tagged the 50 day average.
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CURRENT POSITIONS
Let Your Stocks Tell You What To Do By The Action They Exhibit"
LONG SIDE POSITIONS
AAPL (We are long 25 shares of this at 398.56 as of 11-1-11)
11-2 On weakness we want a bit more of this name, bring on the face of fear trade!
Keep in mind that on Nov. 11th Iphone4s is released to the public in Hong Kong and Korea and we all know they are hi tech gadget junkies
MAKO (We are long 100 shares of this at 37.37 as of 11-1-11)
11-2 IF this issue were to get slammed to the green line either on its own or on an earnings event we’d probably add to our position.
ATHN (We are long 150 shares of this at 51.42 as of 11-1-11)
11-3 Looking Good!
11-1 And there you have it, right down to the 200 day average in the face of fear. Lets see if it can stabilize here.
10-31 This name is a little different animal in the sense that it is selling off to the 200 day average. Anyone remember back in early Aug.? That was a time where just about everything under the sun was tagging its 200 day average and anyone who bought the go go names on that tag had a really nice lift after a bit of sweating it out. That’s how we see ATHN currently. However it MAY not get there as one look at the one minute short term frequency chart today and the last few for that matter show a tightening up at this level.
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To our NEW SUBSCRIBERS
What we’ve tried to do is break our watch list down into chart pattern recognition structure from a visual standpoint. Learn the patterns and the components of patterns and you’ll blow those Wall Street MBAs away. You don’t need a $3,000 software program either. All you need is a BURNING DESIRE to be the best that you can be and we’re here to help.
We have a lot of new folks here and we thank you! We want you to take it easy, get to know how the routine works around here for awhile and to feel comfortable.
We hope you all aren’t here because you are chasing performance. For us it’s more about educating and making you the best you that you can be first (that’s what we focus upon!). Like many of our long time subscribers they have all found out that they have no use for traditional Wall Street (and we don’t blame them) and it’s our hope that over time you’ll have acquired enough knowledge from us to say the same with conviction.
One of the most important things we want to stress is that of RISK MANAGEMENT via POSITION SIZING. You don’t need to stack your account with just a few big positions as we’ve seen it time and time again that those who get into trouble are the ones who take large positions and do not employ any risk management system IE shoot for the fences. Those are the people who live on the fringes of extremes and yes ultimately get burned.
As a guideline a good initial system is that of the following example.
Let’s say you have a $100,000 portfolio and let’s say that as a guide you never place more than 10% ($10,000) into any one position. Now let’s say that one day a news driven event hits (over which you have no control over anyway) and one of the positions tanks 20%. On its own that position is sporting a $2,000 loss, while that may seem devastating on its own its really no big deal overall.
Why? Simple its all about risk management being properly employed. What is the impact of a $2,000 loss to the TOTAL VALUE of the portfolio in this example.
Answer: A whopping 2% LOSS. Now you know why we say no big deal.
We can also tell you new people here that you will get stopped out of names and you will take hits. There is nobody on the planet living that has ever hit 18 holes in one and there never will be. We’d rather get you grounded in reality right away vs talking about pie in the sky all the time like a lot of other sites. In so doing your head is screwed on straight from the start and when those days happen (and they will) mentally it won’t mean a thing to you. To us that’s what’s most important is YOUR state of mind as it’s your most important asset. We hope you appreciate our honesty.
We have a very good retention rate here at All About Trends and a lot of great outstanding people here. We like to think that a part of that is being upfront about what can happen (in both directions). Verses those up 500%, I turned $50,000 into $3 million or some other absurd number to get you to bite. That’s not who we are.
WELCOME ABOARD!
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Lastly with regards to taking any trade:
Remember the moment you take a trade you are at the mercy of the market and have no control except when to sell. If you are not willing to take the risk and are not willing to pay that price do not take the trade. We are willing to take that risk knowing full well the end result could be a loss. That said make sure that portfolio management trade size is used accordingly. With any position you may take make sure that should something go awry the amount of total impact to your account does not devastate your acct. Try to stick to a 5% position That’s the key to portfolio management, not biting off more than you can chew.
Remember the mechanics of reality with regards to the stock market states a stock can only do one of three things: Up, Down, Nowhere. The moment you hit the enter button you are at the mercy of the market therefore the only control you have is when to sell/cover. You can’t manage your gains as you have none to manage initially. Knowing this in advance it allows you to stay in outcome, that being you will either:
1. Make a gain
2. Wash
3. Get stopped out at a loss
Remember the market IS the boss. IT is going to do what IT wants to do.
Let’s talk about options for a moment. First off this is a big universe with a lot of advanced strategies and terms like theta, delta , straddles, butterflies and the whole gambit. For the purposes of this conversation we’ll keep it real simple and not try to get to deep.
We’ll approach it from simple buy puts (short side) buy calls (long side). The first thing I want to mention is that options attract the fast money crowd in hopes of turning 500 into 10,000 overnight. This is also the get rich quick crowd. And more often than not these type of people get broke faster than they get rich. Please don’t be one of them as greed kills.
Time and time again we hear from people who like to trade options, and time and time again we hear the horror stories too. When we hear the horror stories nine times out of ten we can guess as to why their option went to zero. Nine times out of ten it was because they bought out of the money options or at the money options. This is the reason why 80% of those who do options lose money by the way.
Sure there are folks who use out of the monies and at the monies but those are experienced traders that know the ins outs ups and downs.
You see the trick is to NOT pay for time. You want as close to a point for point move as possible with the stock because there is nothing worse than seeing your stock move yet your option does nothing or very little, know the feeling?
So for All About Trends we only want to look at IN THE MONEY CALLS OR PUTS and we DO NOT WANT TO PAY FOR TIME, sure they cost more BUT we want to be as close as possible to being able to see a point for point move with the stock.
We hate paying for time. We want true value without the time. We’re not saying our way is any better than others, we’re just saying it’s what works for us.
Now let’s touch upon how we would build a portfolio dedicated to options and how to make it a piece of your overall portfolio via allocation. Keep in mind this is more geared towards beginners so you advanced people might be bored with it but then again it never hurts to revisit the basics every now and then. At All About Trends Trends we talk a lot about never biting off more than you can chew and trade size position management. We do that for a reason, we do it so as to when Murphy’s law shows up it never devastates us or blows us up. Typically we try to stay within a 5-7% position size when we do a trade. The same thing goes for options. If we were to start a portfolio of options or shall we say allocate a portion of our overall portfolio to options the way we would look at it is the following:
For example, let’s say the total value of your portfolio is $100,000. The most we’d consider allocating towards an options strategy is 10% of the whole portfolio. In this case $10,000. So now you’d have a $10,000 option portfolio to work with. Now let’s say that you are the worst trader on the planet (we doubt that!) and you lose the whole option portfolio, what’s the risk to the total value of the overall portfolio? 10% in which case you live to play another day. Now let’s touch upon that $10,000 you allocated toward options. Let’s reduce the risk even further (and we haven’t even talked about what stocks to trade yet). Let’s take that $10,000 and split it up into no more than 10% ($1,000) can be allocated to anyone position as a guide. (Sometimes 1000 can get you 3-4 contracts you know). Now let’s say that one of those positions goes bust (and they will! and sometimes more than one at the same time we assure you.) What is the total impact to the overall options portfolio? 10% right?
Now let’s take that a step further. What’s the total impact to the overall investment portfolio of 100,000? 1% – that’s right 1 measly percent. When it comes to options you need to employ some sort of portfolio risk management structure parameters as this way you can get in trouble and you don’t lose sleep – you just have a bad day that’s all.
As for getting rich overnight? Forget about it. That’s just a marketing ploy. As for taking 50,000 and turning it into millions? Ain’t happening overnight but it sure sounds good doesn’t it? And that is why people bite on those marketing ploys.
As for time? We never go out months. As a swing trader we’re in positions for only a couple of weeks best case so why pay for the time to go out further in time when you don’t have to. When the stock moves whether it’s right away or not they sure seem to suck that time out of you just as fast anyway right?
Typically we’ll look at the front month (current month) or the next month but not months. When we say front month if options expiration is a week or sometimes even two weeks away we’ll look out to the next month and not the current. While time is our enemy in most cases, in this case it’s your friend. It’s just that you don’t want to pay for it.
