Trading RM, LLC.: Utilizing AND capitalizing on your "favorite" setups

Friday, October 23, 2009

Utilizing AND capitalizing on your "favorite" setups

Posted by Yoav Sharon at 8:31 AM

As intra day traders we need to be able to adapt to shifting market conditions. Sometimes though, the market lines up nicely for us and we have an opportunity to take advantage. This doesn't mean that the trades will necessarily be profitable, it merely means that the odds are in our favor and we have an edge.

Today presented one of my favorite "setups" for me in a few names: AMZN, NFLX, TROW

As most of us do, I have a mental checklist I like to go through when dissecting setups: Here are some of the things I check on my "TRUE relative strength" setup:

-Divergence with S&P futures
-Extensions come on high volume (both on 1 and 5 minute time frames).
-Consolidations (sideways action and re-tracements) on noticeably lower volume
-Breaks new high/low still in AM session after pullback (withstanding markets divergence).
-Breaking range on daily/weekly
-Bids stay firm even when stock moves slightly against

If you look at the charts below (RED=SPY/ GREEN=STOCK) you will see that all three names displayed these characteristics and provided confirmation for traders on our desk to buy these names even though they were already "up a lot" on the day.