Wednesday, December 16, 2009

Sector Focus on Airlines

There are bullish patterns appearing across the airline sector. Many of the charts are currently forming bullish consolidation patterns under resistance and I am looking to trade these on a breakout. Below are setups that I am watching.









Thursday, December 10, 2009

Time for Oven Mitts

When trading is tough we (I) like to say put on the oven mitts. One can not punch too many keys with oven mitts on. In other words, sometimes the best trade is the trade not done at all.

The market lately sure has the feel of holiday lull. I am mentally prepared to do less size, less decisions, and less risk. When the market pays me to increase these variables I will.

Check out our last two plays of the day from the Trading RM twitter feed:

1) On Wednesday December 9th pre open we said:

"Trade off open: Short $MW only on a bounce and hold under the 19 level. Shorts have been tough lately. entry and exits are key"

Check out the MW chart and we see that it could not hold below $19 (light blue line) and thus our trade off the open was a no trade:




2) Today, Thursday December 10th our we sent out via twitter this play of the day:

"Play off the open: Wait. we are seeing nothing. very quiet $$"

Again, sometimes the best trade is no trade at all.

Recall our post on maximizing "1 star days." If I can eliminate just one $500 loser every day I save $125,000 a year. Recognizing early that it is a 1 star day can help us. Today did not feel like a day to push our chips in.


Friday, December 4, 2009

Great job today by all our traders, followers on twitter, and users of Trading RM Real Time who got into gold names, specifically ABX. Check out our tweet pre open today:

"TradingRM trade off the open. short $ABX on a bounce back and hold under the 45.45 level $$"

Below is a 2 minute chart of ABX. The thick blue line shows our entry level from this morning's tweet.



Below is a video screen shot of the opening few minutes. The shot is a bit blurry, excuse us as we work on video quality. Please click on video and make it full screen for optimal viewing.

  • The top right shows out Trading Rm Real Time Chat room. This is available to outside traders. Notice the buys of ABX puts and the timing. (It is noted as +ABX P MM, trader MM bought ABX puts).
  • The bottom right shows and options entry window with time& sales to the right. (we pull up the ABX 45 puts to start.) Our first entry was $1.60. When we pull them up for the video they are trading $1.70. As of 12:45pm the high of the ABX 45 puts was $3.40.
  • The top left and middle of the shot shows various time frame charts of ABX.
  • The bottom left of the shot is an "option chain"



    Followers of our twitter feed and users of our Trading RM Real Time were able to see our ABX idea before the open and see our ABX trades real time from the open of trading on.

Thursday, December 3, 2009

It is important to be familiar with patterns in order to time your entries and to understand a stock's price action. In this example from Wednesday's trading session we see CTRP form a bull flag. Here we see a green candle followed by three inside red bars. The inside bars form the flag and a green candle following the inside bars that closes above the inside bars confirmed that there would be a continuation move higher.

In this example of the SPY chart of today and yesterday's session we some more patterns that can help us understand the price action. In the first box we see a failed bull flag. A lot of times the biggest moves come from failed patterns. Within that sell off a bear flag pattern formed and we got our confirmation candle close below the three up inside bars which led to taking the markets to the lows of day. In today's action we see a larger bear pattern form over several candles. Here we see the initial up move off the open followed by strong selling. For the remainder of the session we traded in a sideways and slightly up formation that could not retrace the move down. This formed a slightly rising "L" pattern which is very bearish. When the selling began, a candle closing below the morning lows confirmed the pattern which caused a sell off into the close.

In this example of the SPY daily chart we see the well publicized head and shoulders pattern form and fail which led to a major move in the opposite direction. The pattern was in play when we got a confirmation close below the neckline, but it did not play out. The pattern became negated once the stock recaptured and closed above the neckline. The pattern failed and a big move followed as soon as the stock took out its right shoulder.

We encourage all our readers and users of Trading RM Real Time to follow us on twitter: (@ tradingrm). Throughout the day we post trade ideas, news stories, and other items important to traders. Every morning we post trades ideas for the day. Check out this mornings post at about 8:15am cst:


"TradingRM trade off the open is focusing on retail weakness: Short $ARO on a bounce and hold under the 30.40 level"


Click on the posted chart for a look as ARO kissed $30.40 and dropped. In the above chart ARO is in green and SPY in red.




Wednesday, December 2, 2009

As traders it is important for each of us to have a well thought out game plan and execute that specific game plan. Executing your game plan means doing the work necessary to prepare for the day ahead and when you see your setup going after it.


This morning there was some two way action in the market. Although it wasn't spectacular, there were things to be done, and trades to be had. However, I found myself not finding "my setup" until an hour into the trading session: that setup involved CMI

CMI had many of the characteristics that I personally look for when looking to get involved in a "weak/strong" name.


  • Divergence with the market
  • Higher volume on down moves
  • Smaller volume on consolidations and retracements
  • Sector support (JOYG , BUCY, DE & CAT all down on the day)
  • Aggressive option buyers: having to "pay up to get filled"
If you look at the chart below you will see that CMI tipped its hand today, and when the market began its pullback (albeit a minimal 5 handle pullback) CMI extended its move down. Although it wasn't an "easy" trade, at one point pulling back 50 cents, the trend for CMI was consistent as it headed lower and eventually made new lows on the day.

Missing marginal trades, that are NOT your setup is part of the game- we can't be in every trade. However, when you see your setup you have to take advantage.

RED=SPY GREEN=CMI












Monday, November 30, 2009

11/30/09 AIG trade setup

Mid day update: today we saw one of our favorite trade set ups in AIG. Some simple characteristics that got us involved in this trade:

  • Break down on daily chart. Below is a daily chart of AIG going back to March 2009.


  • Intraday relative weakness. Check out posted chart, SPY (in red) makes a move up of the open (highlighted by the channel). AIG (in green) shows no sign of strength. This is a great timing mechanism. When market/SPY roll, AIG accelerates to downside.


  • AIG is a name in play and on people's radar.


  • AIG options trade in pennies, which is one thing Trading RM focuses on.

Sometimes the simplest set ups are the best ones.

Sunday, November 29, 2009

Mind Matters

Recently I read Gary Mack Casstevens book Mind Gym, which deals with the importance of mental and psychological strength to achieve excellence in sports. Not surprisingly, the parallels to trading ring loud and clear throughout the novel. One specific section dealt with the characteristics that define mental toughness for athletes is especially relevant:

1) Competitive- "find a way to win" & "take bad breaks and use them to drive themselves"
2) Confident- can do attitude and avoid "self defeating thoughts"
3) Control- focus on what can control and don't allow things they can not control affect them
4) Committed- focusing time and energy on goals and dreams: "wanting it'
5) Composure- staying focused and dealing with adversity
6) Courage- willing to take risk: "only climbers get to the top"
7) Consistency- possessing an inner strength: no place for excuses

As I view the above list, these are many of the attributes that I spend most of my time trying to develop and sharpen throughout my trading career.

At the end of the section on the "Seven C's of Mental Toughness" we are left with a quote to ponder. In sports (and trading) "Competition is won or lost on the six-inch playing field between the ears."

As we near the end of the trading year, it is a time to focus on these keys and hone our skills for the year ahead.

Bearish head and shoulders patterns are appearing on many stocks, especially in the energy sector. These setups will become ready to play short once there is a daily confirmation close below the neckline. The target of the breakdown can be measured by taking the distance from the high of the head to the neckline and then using that distance from the neckline to measure breakdown target.

XLE

OIH


HESRIG
DO

APA

APC



Saturday, November 28, 2009

Waiting for the move


As I watched the Chicago Blackhawks 8 game win streak come to an end Friday I thought of what makes a successful shooter and goalie in an NHL shootout. In my experience watching, playing, and coaching hockey, the way to win a shootout (whether goalie or shooter) is to let the other player make the first move.

A great goalie will wait until the shooter makes his move and then react quickly. Likewise, a great goal scorer will wait until he sees the goalie make a move, lean in one direction, poke check the puck, etc... I am reminded of all the great 1980s Wayne Gretzky highlights when the goalie somehow ends up on his side way out of the net and Gretzky has an easy goal into a seemingly empty net.

What does this have to do with trading?



  • When is there opportunity for a short term trader? Answer: when there is market movement.

  • When does a short term trader get chopped up? Answer: when the market does not move.

Sometimes a trader has to be like the NHL shooter on a breakaway and let the market make a move first. When I looked at the calendar for November I had Wednesday November 25th and Friday November 27th circled as days to most likely do less. Wednesday I barely traded and scratched the day. Friday I made money and had a couple larger positions on.


What was the difference between the full day before Thanksgiving and the half day after Thanksgiving? Thanks to Dubai's debt/ real estate crisis, we saw movement on Friday. That does not mean there was free money to be had. But it does mean that a short term trader is more likely to make money because the markets are moving. I.e. like in poker, the odds favored putting more chips on the table. Had I traded the same size and # of decisions on Wednesday as I did on Friday, I would have lost more on Wednesday that I was able to capture on Friday.


Check out Edmonton Oiler's 2007 4th round draft pick Linus Omark playing for Sweden in this shootout. He waits for the goalie to make a move and then makes him look silly. As a trader I will wait for the market to show its hand and then make the market look silly.



Thursday, November 19, 2009



SPY 60 MINUTE CHART

GWW set up 11/18/09

As a followup to the CL video here is a similar video of a trade some of our room did in GWW on Wednesday 11/18/09. As with the CL trade, this video shows our interns screen. The top right is our Trading RM Real Time product (available via AOL IM). The bottom right of the screen in briefing.com. The bottom left of the screen shows our options view.

The trade involved a move in GWW after it announced guidance and a buy out of Alliance energy solutions in an all cash deal.

As you watch the video please note the following times and actions:

  • Time in video 0:00, the GWW 100 puts are 0.85-1.00. We also see first headline on briefing.com posting that GWW is announcing guidance. At this point the major news services had only announced GWW guidance, but did not mention the buy out of Alliance Energy Solutions. The guidance was in line, but the price action told another story. We noted the price action and were ready for a trade.
  • Time in video 2:14 trader AE buys GWW puts. (+GWW P AE). Put market is 1.50-1.55
  • Time in video 2:52 trader AE is out of his puts. Trading $2.00 and higher at this point.
  • Time in video 4:16 our traders see an opportunity to get in GWW for another trade. GWW 100 puts roughly offer $1.90.
  • As the video ends the puts are bid 2:20





(as I mentioned before future trade videos will include audio commentary and a clearer picture).

Wednesday, November 18, 2009

ALL IT TAKES IS ONE

This week my trading has lacked the rhythm and fluidity that I often look to establish during the day. For one reason or another my decision making has been disconnected with my execution and outcomes. Over the course of a trading career, this is inevitably going to happen from time to time. The key to dealing with this situation is how one responds going forward.

After "battling" this week, I decided to take a step back at my desk mid day. This provided me with an opportunity to refocus and rebalance, while reviewing my trading. Throughout this time I continued to stay alert and ready for any opportunity in the market that would present itself.

Fortunately, one such scenario came late in the day with CL news (potential takeover target). I was able to recognize that this was a play worth getting involved in. More importantly, this trade allowed me to get back on track, to focus on a setup that is good for me, and bring me back in tune with the market.

At TradingRM we like to say "all it takes is one good trade." One good trade can get a trader back on track, recharged, and ready for the next stretch of trading. This is what I will be doing going into the final two days of this options cycle.



CL Trade - Expiration week

Thanks to all who listened in to our webinar on Monday. We hope to be having another sometime after Thanksgiving. As we discussed in the webinar, we feel it is better to learn by doing and/or seeing. Our interns have been working hard to capture "how we operate" and how our Trading RM Real Time can benefit you as a trader. Our interns Charles and Jason were able to capture some great setups that we can share with you.



The video below details a trade the majority of our room did in CL on Wednesday 11/18/09. The video shows a snapshot of our intern's screen. To the top left is the ES mini chart. To the top right is our AOL IM based Trading RM Realtime product. User "trmdata" is our clerk. The chat room "TRM" is Trading RM Real Time. Outside users view this chat.



The bottom right of the video shows briefing.com news feed. The middle and bottom left sections show 10 minute, 5 minute, 1 minute, and 30 minute charts on any given stock.



Keep in mind that while there is no sound with this video, our interns our talking through all the aspects of the market (volume, trades buys and sells, news, etc..). This is available to outside users via our Audio Clerk product.



The specific trade involves speculation that Colgate maybe be close to being bought or linking up with Lysol maker Reckitt Benckiser Group Plc. As you watch the video please note the following along with their times in the video:




  • Time in video 0:00, our TRM chat shows our first trader, AE, buying calls in CL (+CL C AE). Time is 1:57pm cst

  • This news hit Trade the News around the same time, 1:57pm cst.

  • Time in video 0:03 our intern pulls up CL charts, we can see CL sharply higher.

  • Time in video 0:021 we see more traders buying CL calls. Unfortunately this video did not capture our order entry window. (Future videos will) Our purchase price was roughly $0.35 on average.

  • Time in video 0:34 trader AE sells his first piece of CL.

  • Time in video 0:50 briefing.com posts CL/ Reckitt merger news. Our Trading RM Real Time and our Trading RM Audio clerk announced this news earlier. Our first trader (AE) was in and out of some of the trade by the time briefing.com posted.

  • As the video passes the 1:00 mark you can "feel" our traders starting to scale out of their winners.

  • At the 1:40 mark our intern pulled up an option view for CL (bottom left of screen). Note the CL 85 calls are trading 0.75-0.85. (Again, future videos will show option prices and trades from the onset). Although we purchased at $0.35 there was still a trade to be had.

  • Time in video 02:16 we see trader PG has reentered long CL calls. (+CL C PG)

  • Time in video 03:22 "last price" on these calls was $1.90. If you got in with AE and our first traders you have a 600% return at this point. Even if you were "late" and paid $0.80 you have over a 200% return.

  • Again we see guys finding an opportunity to reenter the trade. Time in video 05:03 a couple guys buy calls again. Prices approximately $1.75.

  • Time in video 05:25 the bid on these calls is $2.40. (more sales by our traders around that price).

  • The last minute of the video you can "feel" the volume in the stock and options die a bit. Most of our positions were sold before the last minute.

The main point here is not to do every trade we do when we do it. But users of our products (RealTime and Audio Clerk) can generate a feel for the market and a feel for trades in play. Not only were our traders and our external users of Real Time first to this trade, we were also selling at optimal times and reentering at optimal times.



Sunday, November 15, 2009

NTRSAGO

UTX

HON

AXP

DTG

GOLD

Bamboo Tree

I originally saw the "bamboo tree" on the blog of Don Miller. Don credits its origin to Eric Aronson, who's website www.dashlive.com is evidently expired. Regardless I thought it was worth sharing here:

Keep Watering Your Bamboo Tree - Eric Aronson

In the Far East, there is a tree called the Chinese bamboo tree. This remarkable tree is different from most trees in that it doesn't grow in the usual fashion. While most trees grow steadily over a period of years, the Chinese bamboo tree doesn't break through the ground for the first four years. Then, in the fifth year, an amazing thing happens - the tree begins to grow at an astonishing rate. In fact, in a period of just five weeks, a Chinese bamboo tree can grow to a height of 90 feet. It's almost as if you can actually see the tree growing before your very eyes.

Well, I'm convinced that life often works in a similar way. You can work for weeks, months and even years on your dream with no visible signs of progress and then, all of the sudden, things take off. Your business becomes profitable beyond your wildest dreams. Your marriage becomes more vibrant and passionate than you ever thought it could be. Your contribution to your church, social organization and community becomes more significant than you have ever imagined.

Yet, all of this requires one thing - faith. The growers of the Chinese bamboo tree have faith that if they keep watering and fertilizing the ground, the tree will break through. Well, you must have the same kind of faith in your bamboo tree, whether it is to run a successful business, win a Pulitzer Prize, raise well-adjusted children, or what have you. You must have faith that if you keep making the calls, honing your craft, reading to your children, reaching out to your spouse or asking for donations, that you too will see rapid growth in the future.

This is the hard part for most of us. We get so excited about the idea that's been planted inside of us that we simply can't wait for it to blossom. Therefore, within days or weeks of the initial planting, we become discouraged and begin to second guess ourselves.

Sometimes, in our doubt, we dig up our seed and plant it elsewhere, in hopes that it will quickly rise in more fertile ground. We see this very often in people who change jobs every year or so. We also see it in people who change churches, organizations and even spouses in the pursuit of greener pastures. More often than not, these people are greatly disappointed when their tree doesn't grow any faster in the new location.

Other times, people will water the ground for a time but then, quickly become discouraged. They start to wonder if it's worth all of the effort. This is particularly true when they see their neighbors having success with other trees. They start to think, "What am I doing trying to grow a bamboo tree? If I had planted a lemon tree, I'd have a few lemons by now." These are the people who return to their old jobs and their old ways. They walk away from their dream in exchange for a "sure thing."

Sadly, what they fail to realize is that pursuing your dream is a sure thing if you just don't give up. So long as you keep watering and fertilizing your dream, it will come to fruition. It may take weeks. It may take months. It may even take years, but eventually, the roots will take hold and your tree will grow. And when it does, it will grow in remarkable ways.

We've seen this happen so many times. Henry Ford had to water his bamboo tree through five business failures before he finally succeeded with the Ford Motor Company. Richard Hooker had to water his bamboo tree for seven years and through 21 rejections by publishers until his humorous war novel, M*A*S*H became a runaway bestseller, spawning a movie and one of the longest-running television series of all-time. Another great bamboo grower was the legendary jockey Eddie Arcaro. Arcaro lost his first 250 races as a jockey before going on to win 17 Triple Crown races and 554 stakes races for total purse earnings of more than $30 million.

Well, you have a bamboo tree inside of you just waiting to break through. So keep watering and believing and you too will be flying high before you know it.


Thursday, November 12, 2009

Scenario Recognition

POT

MON
On Tuesday MON was breaking new lows when it made a drastic reversal and rallied $6 from its lows. Today I saw a similar scenario present itself within the same sector on POT. POT was breaking lows and found support on its 200MA on the 10 minute chart and it was the first time touching it since November 5. In both trades the stocks started the morning off showing weakness then reversed off their lows to take out the morning highs and begin breaking new highs on the day on increasing volume and showing great relative strength to the market. Today POT broke a trend line from yesterday's high through yesterdays close and it was then off to the races. In fact on both days the entire sector moved together. On Tuesday MON led the sector and today POT led the sector.

Today is a classic example of the biggest moves happen when you least expect them. (reverse psychology) The slam down to the 1090 level on the S&P500 cash market was a tell tell sign something could be up.. We traded sideways from that level without really ticking higher, then eventually the slam came in on higher selling volume than buying. Everyone I saw was trying to catch the knife, including the algo's which were absorbing every single seller until im sure their daily buying power was exhausted. Boom! once this happened we sold off to 1085 even, algos sold all the futures then probably got short perpetuating the move. Once the selling accelerated we moved through the 1085 level on momentum. Goldman's buy the low tick program was in full force across the financials, even in its own stock.(notice the red circles in the chart).





What i took away from today was stay in the game, keep feelers(small size positions which keep you in the market on both sides) out in the market. I had a FAZ feelers small size along with a few longs. Once i started realizing vol was moving up and ES came down, i added to the position I




Interpreting the tap correctly on a day like this is critical for being on the right side of the trade. I wont lie i was very confused as to where we were going to trade, though Goldman selling and failing to break above its previous day high alerted me sellers are in this market.

Option expiration week is typically one of the most volatile weeks of the month. At Trading RM LLC we have an approach that attempts to take advantage of these large moves. Please join us for a webinar next Monday, November 16th. The webinar will start at 3:30 CST and last for 30 minutes. We will discuss a few of our strategies that we use during the last week of expiration.

Reserve your Webinar seat now at:https://www1.gotomeeting.com/register/842002969

Wednesday, November 11, 2009

11/11/09 Trade Setup - TOL


Today almost every trader in our room was able to capitalize on a great set up in TOL. Here is a quick bullet list of indicators that put TOL in play to long side for us:



  • Gap up post earnings

  • approximately 10% short interest

  • Mini breakout on daily chart

  • Home builders have performed after earnings (see BZH yesterday)

If you click to enlarge the picture at the top right of this post you will see how our room approached this. On the left side is a copy of our Trading RM chat, available through Trading RM Real Time. Our trades are put into this chat real time for our subscribers to view. To the top right I have added a 2 minute chart of TOL (in green) against SPY (in red). The bottom right is a daily of TOL showing the breakout of its mini consolidation around $18.00.


As you can see we were accumulating TOL long between 8:35 am cst and 8:52am cst.


During this time the SPYs (in red) were in a mini down move. This is highlighted in the top chart by the blue channel. Further down in the Trading RM Blast you can see our traders exiting this trade profitably as TOL accelerates up from 9:06am cst through 9:20am cst.


Some of our traders also found support in TOL at $21.00 and entered long later in the day with the overall market weak, but TOL showing some support. I underlined this $21.00 level in blue.


Please visit us here or at http://www.tradingrm.com/ for more information about Trading RM.

Tuesday, November 10, 2009

SPY DAILY

RSH DAILY

SCHN DAILY

X DAILY
APOL DAILY

APOL WEEKLY