What a market.  Our mantra for months now (and if you follow our stream you will have heard this a number of times)  is don’t worry about indices, just trade individual set-ups.   As long as there are individual set-ups, stay long.  However, it takes some effort to to follow our own advice.  Why?  Because often when markets get this extended they have sharp, quick pullbacks that can maim the longs.    All our experience tells us to be wary, and yet we ultimately will always defer to price-action, and this keeps us long.   As you can see, there’ s some conflict in how we feel, and the same wariness is present in the minds of many veteran traders.   Conflict isn’t however  a bad thing — it makes us nimble, keeps our ego in check, and on our toes.

We aren’t that present on Twitter these days — so we thought we’d give a quick update of where we are and what we’re thinking for our non-newsletter followers:

We went to cash on Wednesday afternoon — felt pretty smart by Thursday as market pulled back, only having to go back into swings on Friday as market moved forward.   We are wrong all the time, but we’re pretty good at not staying wrong for long.

On the plus side,  the stocks we sold on Wednesday were extended, and the stocks we entered on Friday were close to bases and gave us a cushion of profit by the close which made us feel a bit more “safe”.   That’s what we’ve been trying to do all year long — sell out of extended stocks and entering fresh breakouts close to bases.  Albeit the latter is becoming more scarce.

$SPY chugging happily along in between standard deviation 1 and 2.   First big red flag would be a break of standard deviation 1.

Financials getting to top of Bollinger Band which usually means they’re due for a rest.   We sold out of our $JPM $GS swings on Wednesday.   We’ll be watching to see if this means simple rotation into other sectors (like $XLE which caught momentum on Friday) or whether it cools the market as whole.

We bought four small positions Friday and swung all of them — three out of the four belong to the $XLE.    The oil sector is one of the few non-extended sectors out there right now.

As our readers know we prefer to go long on oversold markets in longer term bull trends — that’s our favorite spot to bite.  This means for example buying a pullback to bottom of bollinger band on daily while the weekly is still in uptrend.   It’s kind of like short-term reversion to mean within longer term trend.

However, when markets go to top of Bollinger Bands we don’t go short swing (but will do quick fades on day-trades) since in our experience that doesn’t nearly work as well –in bull trends of course, but we would argue it doesn’t work as well/messier strategy even in bear markets.   Fear of missing opportunity > fear of losing money.

Right now we’re close to the top of the BBs in a bull market — this means, keep swimming long, but keep an eye for changes of character, and rotate into stocks that are close to bases.

The post Keep swimming but with an eye on the shore appeared first on High Chart Patterns.

Trading is about coming up with strategies that yield good risk/reward returns.  Now for us often this is waiting for a support long at a certain point — we sometimes try to catch it short before it hits that point, but often we’re not successful and instead just wait for our spot.     Let’s say stock HCPG is hovering at 52 and we see multiple support converging at 46.    We have a good idea that at 46 we will be able to catch a very good risk/reward trade.    Over the next two days it does go from 52 to 46, a 6 point move down, but we’re not able to catch it short, that is it does not set up in any strategy that we know that offers good risk/reward for the move.    At 46 though we buy with 50 cent stop.  Over the next two days it rallies to our target of 48 and we sell it all.  For us that is a solid trade, our meat and potato trade, catching 2 points on 50 cent stop.

The internet troll comes along and says, ha ha, while you were looking for a measly 2 points I caught the 6 point short.    That’s where the internet troll shows his real colors, that of the infamous noob.  We are patient; we wait for everything to line up, and then pounce.  A stock could move 10% before we make our move looking for 2%, and that might sound crazy to a non-trader, but that’s the way it works.  Just because a stock moves 10% doesn’t mean it’s easy to catch.  We only trade what falls in our strategies, nothing else.   We miss moves ALL THE TIME.   Every trader does.  That’s not what trading is about.  The other obvious point is risk/reward, 4x your risk is the same if you risk 50 cents and make 2 points, than when you risk 5 points and make 20 points.

Unless you make your living off OPM,  comparing yourself against market benchmarks is counter-productive.   If market goes down 20% for two years and your fund goes down “only” 8% you are a rock star fund manager.  However, if that happens to us, we’d have to shut down.   Short-term traders like ourselves are all about consistency, being able to pull consistent profits from the market, no matter the condition.   Our PnL does not correlate to market %.   In fact some of our biggest profits are made in flat markets while we tend to under-perform in slow grind-up markets.   As traders know, the more volatility, the better.  The goal of trading for us is not to beat a certain benchmark %, or to be in the top 10% of any list, but to be able to make a good living year in, year out.  Every month we want to be able to pull money out to pay the bills that sustain our lifestyle for our families, and save whatever is extra — which basically is what every worker wants.  That’s about it.

As for future internet trolls– we’ve been trading for 16 years.   We’re good at what we do and we’ve proved that on the stream with real-time calls over and over again now for over four years, and in our newsletter for seven years.   If you want to follow us, great, be quiet and learn.  Don’t criticize, don’t offer advice, and if you don’t like what you see, simply hit that Unfollow button.

The post Make peace with not catching every move appeared first on High Chart Patterns.

Our readers will recognize this chart — we caught on early to this pattern and have been posting it regularly to StockTwits.    It represents the trend between standard deviation Dev 1 (upper black line) and Dev 2 (upper blue line).   On Thursday the $SPY closed on Dev 1 — we tweeted to the bears that this is your chance. If you want it, you have to push now and break the trend.   On Friday the bulls came out in full force and pushed off closing instead closer to Dev 2.  Well done bulls, well done.

When you find a pattern this clean then you have to respect it– keep it simple.  Swim with the current until it tells you otherwise.

The smartest thing bulls could do is to stay within Dev 1-2.  Higher prices and a break of Dev 2 would likely bring in the faders and profit-taking.   Don’t overthink this (and we have to remind ourselves of this every day)– if you want to go contra-trend, go for short scalps, or wait until we leave Dev 1-2.

The post 21 days and counting appeared first on High Chart Patterns.

Overnight lows often serve as a psychological magnet– and we’ve seen bottoms made when regular session tests the low and bounces.   We like this scenario– follow through will be key.

The 100 sma and 50sma are the support zone we had as a long in the newsletter last night — and tweeted real time today at the 100sma.   Perfect hammer on it– again, so far, so good.

This type of technical bounce with a two shot of 1)  making higher low against overnight ES_F panic low and 2) hammering on an ascending 100sma on the IWM, we think is good enough for a short term rally within a news vacuum.    In the end news will trump all,  but in the meantime it could be a happier/holiday type tape for the market after today’s positive action.  Trade against it.

The post Trade against it appeared first on High Chart Patterns.

“This is just a general question now that I have followed you for a number of months.  What is your ‘edge’?  Better said, how would you characterize “your edge”?  I believe that I could answer that but not succinctly like you might be able to”

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It’s funny, but in 15 years of trading no one really has asked us that — here’s our answer:

That’s a great question — ok here goes:

1) we’re very good at reading daily charts, knowing when to get in and push hard and initiate multiple swings, and when to back off and go to cash.  When to stick to daytrading (choppy, treacherous tape) and when to take it overnight (benign, friendly, forgiving tape). But lots of people know how to read daily charts.

2) we’re good at reading intraday charts and strategies we have come up with — Indy, base and break, are now part of many traders’ arsenals. But lots of daytraders are good at reading intraday charts.

3) our edge then for us is to combine these two very well. We have spots (alerts) we know have a good chance of getting a reaction on daily, and then we have the tools on intraday to enter with good risk/reward precision. We are good at waiting for balls to line up before pulling trigger, and this increases our win rate, which in turn increases our conviction, which in turn increases our PnL. It’s a good positive cycle.

4) discipline — we’re less active than most daytraders (we’re somewhere between day and swing) and we really, really wait for the trade to come to us. Of course we weren’t like this in our 20s but we have been trading professionally for around 15 years so that’s come with screen time.  We know now not to treat every trading day the same.

5) conviction — when we have a spot on our newsletter for days and days, when it finally goes, we have the conviction not to falter, and to trade it. We don’t hesitate — and it’s the only time we don’t wait for perfect intraday set-up– especially since the good ones often go near the open.   You need that faith/conviction for those type of trades– and for that, you need confidence.  And in order to get confidence you need a solid track record.  And for us to get a solid track record … we had to develop points 1-4.

Hope that answers it a bit — HCPG

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It’s a good idea to ask yourself that and write it down — as we wrote in our newsletter back in 2006 :

The act of writing lends clarity and coherence to one’s thoughts as it forces you to think over what you are doing. This is something we have come to realize even more strongly since we started this service. We are always aiming to trade in an orderly, clear and disciplined manner. Articulating and putting down our rules, printing out charts, and commenting on patterns for the next day has made us more focused traders.

Ask yourself that and write down the answer– what’s your edge?

The post What’s your edge? appeared first on High Chart Patterns.

Like most traders we love trading $AAPL.   But we don’t trade it that often– just at the big, pivotal juicy places.    The last time we traded AAPL long was a swing initiated on Nov 16 when we tweeted our position.  That one was good for 60+ points (our rule: if we tweet our entry, we tweet our exit).  Our next trade will occur if it reaches 470-480.

We’ve said often that  if the weekly 50sma didn’t hold on $AAPL then next big support was the weekly trendline.   Well guess what– it’s getting close — 6% away– which considering recent volatility is not much of a stretch.

There’s a reason why traders love $AAPL.   It’s because it trades via the playbook on the important places — that is, it does what you expect it to do on the major spots.   Once that changes (and it actually is starting already–more difficult now to game it than it has been in a while) then it will leave the radar of momentum traders like us, and likely that will also coincide it with becoming a value stock.   Until then though — it’s going to be front and foremost on most of our trading screens.

The post Wait for it appeared first on High Chart Patterns.

This  poster was introduced by the English at the beginning of World War II as a way to boost morale, and keep the population calm  in front of Nazi invasion/bombing.   It keeps up with the image the Brits have, or at least want to have of themselves, calmly sipping tea as bombs drop down on their city.

We’re going to buy copies for our trading offices– it’s always good to keep perspective, no matter what the circumstance.

The post Keep Calm and Carry On appeared first on High Chart Patterns.

Let’s take a look at what happened on Friday.    We had talked about earlier in the week how the consolidation on AAPL had made it go far away from the Bollinger Bands– we don’t really strike in these type of tapes until we get at least to bottom of BB.    On Friday we finally had AAPL move to bottom of BB — we posted this chart after it bounced at 511 (it closed 16 points higher) and shortly after our “quite” long position:

So we have AAPL at an interesting spot for technical traders– bottom of Bollinger Band, at 11:30 AM.    AAPL bounces hard.

What happens in the S&P 500?    It follows suit like a little puppy following its Mommy.

If you trade coals you still need to watch AAPL.  If you trade crude you need to watch AAPL.  If you trade small caps you need to watch AAPL.   Because right now AAPL is THE best tell the market has and having one stock that is this important is a gift to all technical traders.

The post Even if you don’t trade it, you have to watch it appeared first on High Chart Patterns.

Currently stands at 557  and last time $AAPL went under it was in April of 2009.   The last test of the weekly 50sma (which held like a champ) was in June 2011.    The weekly 50sma is 4% away– it might not get there, but it’s the first hard edge place that would get us involved.    How about shorting into there?  Not interested as it is already too oversold — we want a long at 557.   Anything else right now doesn’t interest us.

The post This is where we would buy AAPL appeared first on High Chart Patterns.

By combining these two strategies it means we have a lot of potential options for trading.   We are the most patient short-time-frame traders you can imagine– we don’t get involved until we have  a hard edge to lean against, i.e. when the risk/reward is compelling.  Anything in between we sit out or make small bet (1/5 to 1/10 the normal size) intraday-trades using intraday patterns.  But the big money/big bets always comes at the big spots.

We wrote on stream yesterday that $SPY was going to hit the 50sma and daily resistance at 143.7

But even more importantly was the idea that you had to just sit on your hands and wait for that big price to hit first:

Today’s high?  143.72;  and the resistance alert from our  newsletter last night? 143.7-144 with 30-40 cent stop.

We imagine that many shorts put on yesterday were stopped out at the gap open.  Why put on a trade in no-man’s land?  It might work here and there but in the long run you’re setting yourself up for failure.   Be patient, wait for that good risk/reward edge, and trade against that — that’s the basis of our whole strategy, and it’s been good enough to keep us in the business for 15 years.

The post No matter what your time-frame, be patient enough to trade against an edge appeared first on High Chart Patterns.