Notable alerts from 6/16

After my post yesterday “11 tips on using alerts to boost your trading” I’ve decided to share some of the alerts that triggered today, charts, potential trade setups, and my thoughts behind each.

The company or sector symbols include: $GLD, $XLF, $AMZN, $FIT, $UNP, $NKE, $VRX, $GS, $WFC, $NUS, ES_F, NQ_F, CL_F

GLD (Gold)

Gold made a 52 week high today but had a sharp pull back during the day. I had three alerts trigger at the open from $125.96 to $125.06. Because new highs usually proceed new highs I was initially bullish on gold when I received these alerts. I don’t trade GLD very often but like it as a proxy for what’s happening in the market. At $125.06 it was a good scalp to the high of $125.67. However, there was a major breakdown in the precious metal and after making a new all time high GLD closed at $122.38. I believe this has been the single biggest 1 day decline for GLD in the last 52 weeks! GLD is well above the channel it broke out of early this year, see blog. Watch for more downside action in GLD. Im particularly interested to see if it re-tests channel high around $115 which could be a good entry.

gld

gldchart

XLF (Financial Sector ETF)

The financial market has been leading the market down over the past 5 days but staged a nice recovery today. My alert on XLF triggered 1 cent above the bottom at $22.38. I also had two alerts trigger on WFC (Wells Fargo) and GS (Goldman Sachs).

xlf

GS.WFC

I was monitoring this level on XLF to confirm further downside action in the broader market. When the alert triggered I wasn’t willing to trade $XLF on the long side but in hindsight it would have been a great trade as XLF closed at $22.76. Going forward, I’d like to confirm that this bounce isn’t a one-day wonder before taking a new position. As a side note, I may only trade about 10% or less of the alerts I set. Most of my alerts help me monitor what is happening with a stock and the market and aren’t intended to be entry or exit locations for trading.

xlf

AMZN (Amazon) dipped below the 20 day Exponential moving average when it fell below $712. This is something we haven’t seen Amazon do since late April. Amazon is a market leader. It reversed nicely off the low today and closed at $717.75. Look for AMZN to go above $730 for a bullish breakout. It may just chop between $730 and $700 for a while but if it begins to breaking down look for further market downside, especially in the Nasdaq.

amzn

AMZNchart

FIT (Fitbit) the maker of the  popular activity tracker wrist band fell 4% today. The company has had a nice run since coming off it’s Feb low of $11.91 but is inching closer to retesting this low. Should this low get retested buyers may step in and hold a bid. Only time will tell.

fit

FITchart

UNP (United Pacific Rail) was a stock I was looking to short. My alert was set at $87.48 but the stock gaped down at the open and I wasn’t sure if I had missed my opportunity or not. The stock closely follows IYT (ishares transportation index) so I like to follow both these together and look for any divergences. I sat on my hands and decided to let this one pass but it would have been a solid short trade for about 30 minutes.

UNP

UNPchart

NKE (Nike) retested a low it made on June 1st. It bounced off this level but should it break lower more downside price action is probably on the horizon, at least for the short-term. The outlook on retail has been extremely negative over the past few week as many retail stocks have taken a dump. I don’t think retail is hated enough to justify a contrarian approach in the sector so I’ll continue to watch retail and see if NKE can find a bottom and gain footing in the sector before buying any retail related stocks.The other concern with Nike is any negative news around the Olympics. Usually this is a time of year when apparel companies announce advertisements and sponsors so if news comes out that Nike lost these bids to competition it could hurt the stock more.

NKE

nkechart

VRX (Valeat Pharmaceuticals) has been a company I’ve been following and trading for quite some time. See blogs here, here and here. I stopped trading VRX on April 29th which turns out was the right decision. I am patiently waiting for a better price before I re-enter any long positions here. Today’s alert confirmed more downside action when the price broke below $23.08, which was recent support.

vrx

VRXchart

NUS (NU Skin Enterprises) was one of the better performers in the market today. The stock closed up %10 percent after announcing a strategic partnership with Chinese investors and positive update on earnings guidance. My alert didn’t incite me to take any action but it’s now on my watch list and I’ll be looking for potential entries.

NUS

NUSchart

My early morning alerts indicated that prices in the S&P, Nasdaq, and Crude oil futures were slipping to new short-term lows. I thought we’d have another down day because some key levels were broken however prices manged a reversal into the trading session and repaired the potential breakdown with the S&P and Nasdaq closing int he green. With options expiration tomorrow it will be interesting to see how the market closes the week.

Futures

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11 tips for using alerts to boost your trading.

When it comes to trade ideas there are almost too many choices available for traders and investors.  By my estimates there are probably over 10,000 stocks you can trade in the USA and that’s not including, ETFs, futures, or Over the Counter Pink Slips (penny stocks). Alerts are more than just a quick way of identifying potential trade setups. Just because an alert triggers doesn’t mean I have to make a trade. I probably only initiate trades on 10% of my alerts that trigger. My alerts are purely “alerts” or indicators that give me information about what’s happening on the stocks that I follow. Whether your preference is to to stick with a handful of stocks you’re familiar with or go hunting for the next setup here are some tips on how you can use alerts to optimize your trading.

1. Alerts to notify you:

Probably the most obvious reason to set an alert is because you cannot monitor the price action of a stock every single minute of the day. Alerts can trigger and notify you through email, text on through the trading platform when the stock is at a point where you’d like to buy or sell. However, investors and traders who cannot quickly act alerts are at a disadvantage. One remedy to this problem is to use a conditional orders which will execute for you when a stock meet your price objective. I’ve found that conditional orders are limited, clunky and don’t always execute in an orderly fashion. In my recent blog update I notified you that my partners and I are developing a software program which will let more people actively participate in their trades without having to monitor the action each and every minute of the day! We believe this solution will give people a better experience than any alert or conditional order can offer.

2. Alerts to identify your exit point: 

I HATE setting real stop losses. A stop loss is an open order, or as I like to put it, a public announcement saying “I will sell here”. Market makers see stop losses and if they want can push the stock lower to take your shares then buy them right back up! This has happened to me more times than I’d like to admit which is why I don’t set stop losses. Getting whipped out of trades is not fun and rather than showing my hand by setting stops I prefer to have an alert that tells me the stock is at price where I  want to sell. On a side note, for more info on how Market Makers control the price spread check out my blog here.

3. Alerts to identify breakouts:

Alerts that trigger above prior points of resistance may help notify me before a breakout develops. This is a good way to get into a trade before a big move ensures. If a breakout occurs I can take a position and set a new alert at the next resistance level where I will take profits or add more depending on market conditions.

4. Alerts to identify support:

Setting alerts at multiple support levels is one way I identify potential entry locations. When an alert triggers where I believe a stock has bottomed I can take on a position and then set another alert below that. If my second alert triggers than I might be wrong and should get out of the trade. However if I’m not sure where the bottom will form I can set several alerts around the location where I think the stock will bottom. Each time one of my alerts triggers I can lightly scale into a position until I have on a full trade.

5. Alerts to identify market tone:

The more stocks you set alerts on the better idea you will have about the direction of the overall market. This can help you understand whether your alert triggered because of a unique move in the stock or because the broad market breath is trending higher or lower. If several of stocks I have alerts on are triggering at the same time it’s usually the broad market strong moving in one direction or the other. So before jumping into a trade, make sure you can decide if your alert is unique or because market forces are pulling/pushing all stocks in a similar fashion. Another way to measure this is by looking at the $ADD (Advancing vs Declining stocks) or $TICK. See link for more info on these.

6. Set alerts to selectively choose which stock you should buy or sell short: 

Part of my homework every nigh when I review stock charts is to set alerts at key levels. Having multiple alerts set on a variety of stocks gives me more trading options when the market opens in the morning. A majority of my alerts will trigger in the morning and I can choose which trades make the most sense based on the alert.

alerts2

7. Alerts for technical indicators and calendar events:

If you’re looking to optimize your alerts beyond price action many trading platforms let you set alerts on technical indicators like the MACD oscillator, Volume, Bollinger Bands, moving averages, etc. And calendar events like dividends,  earnings, etc.

 

8. Alerts for portfolio metrics:

Many traders will also choose to set alerts on metrics like Net Liquid Day Change, Margin Requirements, Portfolio Delta, and more.

9. Alerts over time:

Once I set an alert I usually don’t remove it just because the price has changed. If I set an alert at a critical juncture on a stock I will usually keep that alert in tact even if the price has moved significantly above or below the price where I set my alert (see AMZN chart below). Many times this comes in handy for stocks that I haven’t monitored in a while. When these alerts trigger, those stocks are then added to my watch list.

Alerts

10. Alerts shouldn’t be noisy: 

Although I’m encouraging you set alerts on multiple stocks it is good to clean up your alerts and only have them set at meaningful locations. Too many alerts may cause you to forget the reason behind why you wanted to monitor that stock in the first place.

11. Alerts should be checked against news:

For alerts that trigger because a stock as increased or decreased beyond the average price range of a stock it’s important to understand why that stock has moved more than usual. See Average True Range for more info on this indicator. The increased volatility in the stock may have been induced by company specific news such as a downgrade or earnings event. In these cases its good to re-evaluate the reason why you set that alert and decide if it’s still worth the risk.

Follow me on Twitter @ Jeffreytief

 

 

Market Volatility Update

Volatility indexes have been sold-off over and over again making many traders wonder when do periods of high volatility actually follow periods of low volatility?  I’m not going to pretend like I know that answer to that or present any statics that imply a time frame. What we do know however is that when volatility rises dramatically, like we saw in September when the VIX hit a 5 year high, and then again during the market debacle in January, the proceeding months have been followed by periods of low volatility. It’s a pattern most market participants are aware of and since we’ve been stuck in a period of low volatility for quite while, traders betting on another spike may soon be rewarded. Or may have to continue waiting patiently.

It’s hard to say exactly when we will get a spike. But after looking at a 5 year weekly chart of the $VIX you can see that it closed right above $17 last Fri. June 10th, 2016. If this level is breached to far we could see a quick rise up to the $20s or $30s. Again, it’s hard to say what the chances are for a breakout here. Interestingly, last week traders were buying volatility and hedging. While broad equity markets continued rising droves of August $205 SPY puts were being bought up and VXX (A volatility ETF that tracks VIX futures) maintained a strong bid.

$VXX

I started trading volatility this year late in March. After 11 trades with $1500 profit and only two losses I do not currently have any more $VXX. I’m looking forward to putting on more volatility trades but now that I am out of those positions it may be easier to wait and see what happens this week as the market gets ready for Fed Chair Janet Yellen to delivers.

My track record on volatility trades this year has been going well. These have all been long positions, where I bet on volatility rising. I’ve blogged about these trades several times through the year.

With regard to the loss, I didn’t want to take a worse loss, especially in-front of the Fed this week. Unfortunately my timing was poor and I close right before the drop in the market on Friday. That was a real bummer but I guess not even Steph Curry and the Warriors can achieve 100% perfection! As we draw closer to the second half of the year the question for VXX traders is whether or not this line at $17 on the VIX represents resistance or a change in volatility?

Here are the combined realized gains for all my volatility trades that I post in the blog. I forgot to post the June trade. The 9 others (I believe) are all documented on the closed trades page.

VXXreturns

Follow me on Twitter @ Jeffreytief

Check out my latest blog: Four Key Pillars to Successful Day Trading.

 

4 Key Pillars to Successful Trading

 

In this blog I will discuss. 

  • My current status update.
  • How to generate income over time by day-trading.
  • 4 key pillars to being a successful trader.
  •  4 core tenants for planning a trade with a recent real world example.
  • How to start overcoming psychological problems traders face.

It’s been a while since I’ve posted. Partly because I’ve been swamped with work but also because I haven’t been inspired by much of what’s happening in the broad stock market. The continual upward trend on light volume and weak structure has not given me an abundance of confidence. The bull’s sentiment backed by dovish Federal Reserve banter means there’s a good chance the S&P 500 makes new all time highs soon and that has me questioning being overly short. Contrary to this, I do not feel comfortable putting money to work on the long side for more than a few weeks. Why? Much of the economic news has not been good; i.e. Q1 earnings results, interest rate uncertainty, Brexit fears, China, high student loan debt, employment rate declines, and increasing default rates on subprime auto-loans (similar to the housing crisis in 2007). If the news gets better surely my outlook will change but for now I’m going to play it safe and stick with day trading.

Other than my 401k and IRA, I’ve been mostly in cash, using some capital to day-trade and put on small short-term trades that last a week or two. This isn’t investment advice but a transparent disclosure of what I’m personally doing.  I’m sorry I haven’t been able to share some of my short-term trade ideas but I’m happy to say that my win/loss ratio is well above 50%. An example would be my silver trade (SLV) which I initiated on May 31st and closed out on Friday, June 10th for a 50% gain! I’ve also been cutting my losers quick, perhaps a little too quick as you can see by my volatility trades for 2016.

I’m currently working on a project which I hope will give people an opportunity to participate in my day-trade and short-term ideas. My partners and I are developing a technology that we believe can let more people actively participate in the market without having to monitor their trades each and every minute of the day! It’s been challenging, exciting and fulfilling to get past the concept phase and into testing the software in a real time trading environment with actual money on the line. For now, that’s all I can disclose about this project but I really just wanted to let you know that this work is part of the reason I haven’t had time to post my blog articles.

Chart of Silver from May 31-June 10 (2016)

SLV.PNG

How to generate income over time by day-trading.

I believe day-trading (if done right) can generate more income than investing in the long-term. Average “investors” look to beat the S&P 500. This means that if the S&P goes up 5% in a year and they make 6% they are doing well, or if the S&P 500 goes down 3% in a year and they only lose 2% they are doing well.  As a day-trader, I seek to make between 25%-100% on an annual basis not matter what! This isn’t to diminish long term investing. They are totally different and each has it’s merits. Since the market tends to go up over time most people (reasonably) prefer a long-term buy and hold investing approach. It’s much less risky, but also much less rewarding. Some of the challenges new day-traders face is the ability to do more than just predict the short-term direction of a stock. It is an extremely emotional, psychological and difficult endeavor and one most people fail at. Without a process it can be a futile endeavor. I have had much success and failure in this area and after 13 years of trading have begun to understand what it takes to implement a successful process. I’ve said it before, day-trading is the hardest thing I have EVER done. That is why I want to share with you a process that may help you discover some success in this area.

4 key pillars to being a successful day-trader over time…

  1. Every trade you make is unique and independent of all your past and future trades. Just because a stock has acted a certain way in the past, doesn’t mean it will act the same again.
  2. You must have a plan before you enter a new trade.
  3. You must be correct greater than 50% of the time (I can write another blog on  this point alone but will save that for another day).
  4. When you’re wrong you must not lose more money than you make when you’re correct.

These four keys may be very obvious but implementing them is not as easy as it sounds. Trust me on that! There are many barriers (including subconscious barriers) which prevent even the best traders from implementing what they know to be true. In the next part of this section I am going to walk you through a trade I made, the psychology behind my decisions and the satisfaction I experienced even though I could have made a lot more money than I did. Then I will finish by explaining how this trade was a small piece of a longer term process and how using the four key pillars to being a successful day-trader really work.

On Friday, June 10th I sold short CAT (Caterpillar). This means I was betting the stock would go down. There was nothing special about this trade. In fact, if you look at the minute by minute chart of the S&P 500 ETF SPY (left side) and CAT (right side) they are very similar (see charts below). CAT did however close down more than SPY on a percentage basis. Subtle differences between the price action on CAT and the broader market provided me with clues and an edge, but I probably could have picked any DOW or S&P 500 stock and had similar success simply by implementing the four keys to being a successful day-trader.

CAT&SPY.PNG

Justifications for shorting CAT:

  1. CAT has had a tremendous run and was due for a pull back (42% rise from Feb low to April high).
  2. The broad stock markets around the world were falling, which meant that it would be hard for large cap stocks like CAT to go up without any game changing company specific news. Big companies like CAT usually (emphasis added) go down on days the broad market goes down and up on days the market goes up, so shorting was the most likely direction to be successful for the day.
  3. At the opening bell, CAT had a deeper sell off than the rest of the market.
  4. CAT is closely tied to commodities like oil which was pulling back sharply.
  5. CAT is closely tied to the US dollar and when the dollar goes up, commodity related stocks tend to perform poorly.
  6. An alert I had previously set triggered which implied that Cat had risen to a level which I believed was a good entry and location for a short trade on a market down day.

*disclaimer – I am fully out of this trade and have no intention to go long or short of it again until market conditions justify a trade.

Despite these justifications, I needed a solid trade plan before I established a position. Remember, this is a day-trade so having a lengthy, detailed, mapped out plan is not really a viable or realistic option. The plan should only take a couple minutes to formulate in your head however, the plan needs to be comprehensive enough to consider all possibilities.

4 Core tenants of a good trade plan…

  1. Determine your time-frame for the trade.
  2. Determine potential entry and exit points before you trade. Entry and exit points may be based on the amount of money you are willing to lose compared with how much you believe you can make. This can be based on a percentage increase/decrease, or a specific price point for the stock you’re trading. For me, this tenant is somewhat dependent on tenant #1.
  3. Determine how many entry points you want to have. For me, I typically do not use all my cash available for the trade on my first entry. I don’t want to clue High Frequency Traders (HFTs) to what I’m trying to accomplish. I also want to save some dry powder to see if I can get a better price. When you play poker do you shove all your chips into the pot when you think you have a decent hand? Probably not, if so please tell me where you play at!
  4. Determine how much capital you are willing to use for the trade.

Once you know these four things you can begin implementing the trade idea.

Implementing my trade plan…

  1. Between 7:43 and 7:46 AM (pacific), I sold short 1000 shares of CAT @ $76.42. I divided my first 1000 shares into two separate trades. I usually like spreading out my trades because I don’t want HFTs to catch on to what I’m doing. There is an extra trading cost associated with this strategy but it gives me some extra time to see if I can get a slightly better price, and to see if I really like the trade. If I do get a better price it covers the cost of the extra trade. In this case my first two trades were at $76.40 and $76.44.
  2. The 1000 shares at $76.42 tied up approx $76,500 worth of day-trading buying power (margin), half of what I was willing to place on this trade.
  3. This was a scalp trade from the beginning. I didn’t want to be in this trade for more than 30 minutes. 30 minutes is a personal preference. There is an opportunity cost if our capital is tied up and we cannot put it to work on a trade generated by our trading software program.
  4. With the initial 1000 shares I was looking for a 2:1 win/loss ratio. My stop zone was $76.62 and profit taking zone was around $76.02. So, if CAT hit my profit zone I would gain $400 but I was only willing to lose $200 if CAT hit $76.62.

CAT_t1&2

Within minutes the stock started to move nicely down in my direction to $76.27. I had two separate orders to buy-to-close the 500 shares @ $76.21 and 500 shares @ $76.17. The idea was to take profit early and maybe re-enter the trade on a bounce. At $76.27 my 1000 shares showed an unrealized profit of approx $150 dollars but suddenly the stock bounced up and my profit was gone faster than it had arrived. This is where the ability to adjust your trade plan can increase your chances for success. Remember, some of my priorities are to be in the trade for as little time as possible, realize a decent profit and move on to the next trade.  My target range of $76.02 was not a hard set number. I imagined it as an “ideal” place to take profits. I believed that it could easily reach that number. One thing I’ve leaned about beliefs (the hard way) is that they often interfere with my ability to make money. When your belief is so strong about the future price of a stock and the direction it should go your brain will subconsciously block any negative information that contradicts your belief. This is because our brains are hardwired to avoid pain. Preconceived believes about the direction and future price of a stock will emotionally and psychologically cause traders the most pain because it’s not until they’re in a bad loss that they realize the data has been indicating all along that they were wrong. Instead, we should strive to understand this dichotomy by interpreting the data and accept that our beliefs may be wrong!

Back to the trade at hand…When the stock surged back up to $76.43 I added 1000 shares to my position bringing the total dollar amount of the trade up to $155,000. This was the max amount I was willing to utilize for this trade, which was the plan from the beginning. However, adding 1000 shares changed the dynamic of my trade in two ways…

  1. I was required to re-think my win:loss ratio. Was $76.02 still my sell target and $76.62 my stop zone. If so then the dollar value of my potential gains would be greater than before but so would the dollar value of my potential losses.
  2. Was my time frame still 30 minutes?

There is no right or wrong answer to these questions. It’s depends on the trader and their appetite for risk. For me, taking money off the table and freeing up capital for the next trade was a top priority. I decided because I was adding more exposure, and taking on extra risk, that I would immediately sell the 1000 shares I bought regardless of what direction it went next. For example, if the stock went above $76.50 I would sell half and take a $70 loss but if it went back down to $76.27 I would gladly sell half for a $150. By tightening my profit and loss zones my ratio of 2:1 never changed and neither did my potential gain or loss. Also, after the surge back up to $76.43 my belief that I was right didn’t change. I didn’t let fear change my perception but I also would be carefully monitoring any new data that might suggest I was wrong.

Sure enough the stock dropped back down to $76.28. I tried buying back the shares at that price but I think High Frequency Traders (algorithms) were not letting me get filled so I settled at $76.30 for a $120 gain. $120 in one minute is a great time/profit ratio (for anyone) so I was very please to take half of my trade off the table, free up cash and be more patient with my $76.02 target.

After thirty minutes CAT was still trending down in my direction but the price hadn’t decreased enough for me to realize much more profit than I had previously taken. I decided to be a little more patient and see where the price would go. After 37 minutes I took off another 500 shares at $76.20 and then after 45 minutes I took off the final 500 shares at $76.05. I made slightly over $400 on the trade.

CAT remainder

Not long after I had sold my final shares did the stock reach my $76.02. I guess in hindsight I could have been a little more patient. The stock went as low as $75.38 which would have been a $2000 gain had I covered all my shares near that level. One takeaway that I’ll try to apply next time is to keep a small position which doesn’t tie up much capital. That way if the stock does make a big move in my direction I can reap the benefits or if it goes against me I can cut it without regret and still have plenty of dry powder for the next trade.

The point of this story is not about how much money I could have gained. Nor is the point of the story to impress upon you a 30 minute time frame like the one I applied here. Actually, for most traders, it would probably be wise to be more patient than I was and let the trend play out. The point of this story is to show how I applied the 4 key pillars to being a successful day-trader. I didn’t base this trade on past CAT trades (or any trades for that matter). I didn’t let any preconceived believe about the direction or future price of the stock affect my decisions. The big point is that if I can repeat this process successfully over 50% of the time I will be be profitable in the long run as a day-trader. Consistent winners add up over time, even small ones. The more trades you can make using this strategy the better your results will be. This is exactly what we are trying to accomplish through the technology we are building, and that’s exactly how you can day-trade to generate income over time.

4 key pillars to being a successful trader over time…

  1. Every trade you make is unique and independent of all your past and future trades.
  2. You must have a plan before you enter a new trade.
  3. You must be correct greater than 50% of the time.
  4. When you’re wrong you must not lose more money than you make when you’re right.

Follow me on Twitter @ Jeffreytief

1 minute chart of CAT on June 10th, 2016.

CATday.PNG