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The Chart Addict

ADLS Review / Criteria Change / Thanks

Huron Blackheart, Tyrant of Badab, Chapter Master of the Astral Claws, Servant of Warmaster Horus

Well, if you saw ADLS and CTIC, then you know that I had a small down day yesterday. I got into ADLS at $1.14 on 5/29, and for some reason, I sold only half my position yesterday at $0.85. The other half? I still have it. Ridiculous right? Well, I will sell the remainder today.

ADLS was a 5% position. I took a -25% hit on the first half, and I’m holding the other half, a -62% loser, which makes up 2.5% of the port. Not bad. Then BZ came and saved the day, cancelling out CTIC’s losses. It could have been a disaster, but I was never in any danger.

This is the most simple lesson in position sizing that I can give you. It will save you from utter destruction. If you had a much larger position, then you aren’t having a really good day right now. Taking losses is ok, but only when they are contained.

My holdings are cash (52%), ADLS, CTIC, ACAD, TGB, MRGE, BZ, PLLL, AXL, and OCNF. You guessed it, they all make up approx. 5% each. Within minutes, I went from being 100% long to 48% long and cut a lot of positions simply to raise cash. It was a necessary emergency defensive measure I had to take. My goal is to preserve my gains, so after this ADLS incident, my risk tolerance for biotech went way, way down.

But hey, I’m still up +10% for June!

I wanted to bring up ADLS specifically because this is the first time I lost so much on one stock in a single day (by percentage) in the biotech sector. For this reason, I will be making the following changes immediately:

  • Focus on higher priced stocks with a limit of $20, instead of $3.
  • Cut the biotechs and get into other sectors.

I respect the market and listen to what she tries to tell me. ADLS was a warning against buying so many lotto tickets and I will heed it. That’s how I roll.

In addition, I will post charts of potential breakouts on the blog from now on until I get tired of doing it. I’ll give them to you, but it is your responsibility to make good judgment calls on them. You can thank me later. These are only setups which must be confirmed intra-day. Don’t buy shit indiscriminately just because I post a chart.

Finally, I want to say that I am really proud of everyone that contributes on my blog. Your picks and ideas are golden. Everyone’s making money here (or should be, if not, shame on you), and that’s a really great thing. I can honestly say that I am making money from some of your picks, so keep it up and thank you for your contributions. You all know who you are.

4:30AM EST – I only got through A to C stocks because it’s 4:30AM and I didn’t get any sleep yet. These are only setups. Trade accordingly.















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Consolidation / Support (920-925) + Resistance (948)

I told you we were going higher, didn’t I? Yet, some of you kept shorting last week or all of last month, practically volunteering to stand outside of a 7-11 with a cup in your hand. Banking coin isn’t free, you have to earn it.

Yesterday, patience rewarded those that held onto CTIC for a +46% gain (not to mention an extra +17% on Friday). I believe I did mention a few days ago that it was my largest position. BZ was the 2nd largest gainer at +18%. MRGE was the biggest loser at -9.5%.

In the end, I am up just over +160% YTD, my all-time high for 2009. I also started off June with a +13% gain. Those that bet against Warmaster Horus and the Chaos legions were swiftly defeated, while the resistance unwillingly received ‘the Mark’ and became cultist slaves. It’s a tough business being a short.

As for the market, there’s a reason why I was (and still am) in 100% small caps. The RUT was the highest performing index, up +4%. The SPX finally made it over the 200-day MA via continuation gap, and the DJIA is still bumping up against it. Likewise, if you looked at the world market indices, as well as the US market’s individual sectors, it should have been plainly obvious which direction we were heading. Stop making this game so difficult for yourselves.

You can see the new short-term range locations for all of the indices. Today is very simple. I do expect a pullback, but all we have to do is not cancel out yesterday’s gains. Then again, most of my picks don’t follow the general market anyway, so who knows.

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Q & A with CA

The Mark of Chaos

This will be the weekend educational post. I decided to openly answer some recently submitted questions. Apologize for any grammatical errors in advance.

1) “OpihiMan” wanted to know about my trading routine, post-trade analysis, record-keeping, my definition of trading success, if I pay attention to macro situations/news, the stylistic differences between day and swing trading, and whether I subscribed to any paid services.

a) Trading Routine – I create my watch list the night before. Then, I try to be ready 2 hrs before the market opens. I watch the futures market as well any gap ups or downs on any of the stocks on my watch. I plot them on “blank boxes” to see if they will fade or break higher. I also plot the approximate open of the market on the chart. I go through my scan one more time in case I missed anything (and I do miss things anyway).

b) Post-trade Analysis – I review the daily charts of my holdings and the market indices. I mark all holdings as either “hold” or “possible sell” for the next day. The ones with a “possible sell” are given higher priority the next morning.I also monitor the Asian and European markets and plot them on the daily as they progress.

c) Record-keeping – A simple spreadsheet for the trades. The blog is my trading journal.

d) Trading Success – My personal definition is measured on monthly percentage returns. My goal is 10%+ per month. If I don’t hit double-digits in any given month, then I know I did something wrong. March 2009 was the first month in 15 months where I made less than 10% and I did make quite a few mistakes.

e) Macro Situation/News – I do pay attention, but I don’t put much weight on them at all. I let the charts do the decision making. Sometimes, news can gap the markets beyond a consolidation range and form a breakaway, in which case it is technically significant.

f) Day/Swing Trading – same patterns, different time frames. Tolerance for risk and loss and the margin of safety is greater for swing trading than for day trading.

g) Subscriptions – I only have a monthly membership to Stockcharts.com, which I highly recommend for candlestick chartists.

2) “Kush” wanted to know how trading the opposite of the media (CNBC, Cramer) makes you money, finding a trader that’s a contrary indicator, best time to buy, and FAS/FAZ range trading.

a) Trading Opposite of Media – I use CNBC only for breaking news, economic data results, etc. I do not watch Cramer’s show and ultimately, you shouldn’t blindly trade a stock because someone mentioned it. You have to do your own homework. Sometimes the media is right, sometimes they’re wrong. You should trust in your decisions based on fundamental and/or technical facts.

b) Contrary Indicator – Josh. He bet against me for 7 weeks, and look what happened to him.

c) Best Time to Buy – For anything, the best time to buy is when a high-probability setup emerges. Doesn’t matter when. Same goes for short setups. High-probability setups ensure that the odds are in your favor in most cases.

d) FAS/FAZ Trading Range – First of all, when and if I trade FAS/FAZ, I use the SPY. It may not be as accurate, but it will help when the market gets to become too volatile and it can help you control your emotions. I personally do not recommend day trading within a tight range, such as the triangle we’ve been seeing for the entire month of May. The range is about to close, and the market will make a major imminent move.

3) “GonzoTrader” wanted to know what intra-day scans I am running, the most reliable chart setup, pre-market homework, setting stops and limits on buy orders, finding stocks with the most market orders pre-market, and what sectors are in play for next week.

a) Intra-day Scans – I hardly run intra-day scans. I get my slaves to do that. Since I am a swing trader, I can get away with scanning after the market closes each day. My scan right now is all stocks between $1-3 with volume above 100K. Prior to the dollar stock circus, my “normal” scan was stocks above $5 with volume above 500K.

b) Most Reliable Setup – This one goes to the High-and-Tight Bull Flag. I drew it out below:

c) Pre-market Homework – refer to (1a).

d) Setting Limit and Stop Buys – In cases where I believe that a multiple number of stocks will breakout at or near the same time, I will set limit orders immediately above their breakout resistance levels. The vast majority of time, I use market orders and manually make entry.

e) Finding Stocks with most Pre-market Interest – You can use http://money.cnn.com/data/premarket/nyse (also contains NASDAQ stocks). You can also go to http://www.allstocks.com/markets/premarketactive.html or http://dynamic.nasdaq.com/dynamic/premarketma.stm.

f) Next Week’s Sectors in Play – TBD, but I am long biotech/pharma, oil/gas, and commodities.

4) “Cuervos Laugh” wanted to ask how I managed my information flow.

a) I actually do not read blogs on my blogroll unless something is brought up to my attention. As for the links on the sidebar, I primarily look at pre-market action and analyst upgrades/downgrades. The link library is for the readers, not me.

5) “P” wanted to know about using different time frames.

a) Using Different timeframes – Intra-day, daily, weekly, and monthly time frames should all support each other. Which time frames should you use? It all depends on your holding period. I use intra-day and daily charts since I am a swing trader. If you are a buy-and-hold investor, you should use the daily and weekly charts more frequently. Intra-day and one-day breakouts or breakdowns are your earliest signals for entry or exit.

When you mentioned the SPY, the weekly pattern is not a bear flag, it is a bull flag as noted below:

6) “Juice” wanted to know how I spot s FEED, CAR, DDRX in it’s early stages and how I can tell if it’s going to go to sub-$1 to $5+, and if ATSG can get over $5.

a) Finding Next Multi-bagger – This is a difficult question because no one knows for certain whether a stock will go from sub-$1 to $5+. The only thing that I can tell you is to keep true to the technical pattern of the chart. If the chart remains intact, then hold the stock. It also depends on your time frame. In these cases, you’ll most likely have to be a positions trader, holding positions for several weeks or longer. The important thing is to catch the first high-probability setup for the stock and ride it until one of the wheels fall off.

b) ATSG – I would be mindful of the May 2008 breakaway gap down as it will create some resistance. Like I mentioned above, ride the trend until it trends no more. See chart below:

7) “Kel” wanted to know about target setting.

a) Targets – Usually, my targets are located at major moving averages and support resistance areas. I do not use MA crossovers, because they are lagging. Instead, I first determine which MA a stock is following (e.g. 15-day, 20,day, 50-day, etc.). When the stock reaches striking distance, it is automatically placed on my watch list. An intra-day setup and/or breakout will confirm the entry. As for exits, I usually sell at least a partial position at the first major resistance area (by major, I mean the 50,day, 100-day, MA’s or 200-day or any large previous breakaway gap downs).  It all depends on the individual stock.

8 ) “Susannah” wanted to know about setting stops and exiting positions.

a) Stops – I rarely use them. The last time I used stops was when I was on vacation in Mexico. I use flexible and mental stops and the shorter-term MA’s, such as 15 or 20-day MA’s, dictate my decisions. If a stock closes below a short-term support area, I would most likely exit the position. If I am wrong, I can always re-enter the stock.

9) “Yogi & Boo Boo” wanted to know how I keep myself from blowing up.

a) Anti-Blowup – Keep most of your positions small. With the exception of CTIC, all of my positions are between 5-10% per position. This way, ff a stock drops -20%, you don’t freak out (you shouldn’t). In addition, make sure your stocks have the best setups, thus ensuring a higher success rate. Sometimes I recommend stashing away your gains to protect them during times of extreme uncertainty.

10) “Lindsay” wanted to know if I watched any bellweather stocks during the day, hedging long/short positions, the US Dollar, China, hyperinflation, and ETF use.

a) Bellweather Stocks – I do not, but that doesn’t mean people shouldn’t. I keep things very simple, so basically I simply keep an eye on the SPY, my existing positions, and my watch list stocks.

b) Hedging – Hedging is highly recommended during times of consolidation to avoid whipsaw and during times of uncertainty of market direction. Once it becomes apparent that one side has the greater odds of winning, release the hedges.

c) I do not particularly pay attention to the US Dollar, China, or hyperinflation for my trading. I refer to the other bloggers to answer these questions for you (feel free to chime in).

d) Using ETFs – The positives are less vs. individual stocks, diversification. The big negative associated with ETFs (I’ll refer to the 2x & 3x ETFs) is time decay. Over time, price will decay as a result of the daily compounding of the NAV. This is especially true for the 3x ETFs (e.g. FAS, FAZ).

11) “Fortune8” wanted to know about trading options the “right way”.

a) Options – Not an expert. Comments are open for expert options traders who use them frequently since I do not use them often enough.

12) “All About Health” asked what my process is for deciding to switch from long to short and vice versa during the day, as well as selecting the right industries/sectors to trade.

a) Switching Sides – Under extreme circumstances, I find myself having to entirely switch sides. This occurred at the March bottom when I was briefly caught short, a mistake that contributed to my worst month in 2009 (+2%). I am not a primary day trader, but the same patterns that apply for swing trading also apply to day trading. Use chart patterns, intra-day moving averages and trailing stops to guide you from one direction to another. It’s all the same thing, just a different time frame.

b) Choosing the Best Industries/Sectors – First, I look at the SPRD sector ETFs for any clues (XLV, XLB, XLK, XLI, XLY, XLP, XLF, XLE, XLU). I then look closer into sub-sectors (e.g. for Health Care, I’d look into biotech, drug manufacturers, healthcare providers, etc.). Then I’d look into individual names. This is a variation of the top-down approach.

13) “Nashville Cat” wanted to know about gap strategies at the open.

a) Morning Gaps – When a stock gaps within a range/consolidation/S&R, then it is not very meaningful to me and the gap has a higher chance of fading. However, when a stock gaps outside of the above, it has a higher chance of following through. This is not true for exhaustion gaps (which fade anyway), but they are true for breakaway gaps and continuation gaps.

14) “Relaxsome” wanted to know if I used oscillators.

a) Oscillators – I don’t use them. They are unnecessary. Focus on the basics.

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BLING BLING

ICED OUT.

I need ideas for more educational posts. Let me know.

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Still in Consolidation (875-930)

We are still in consolidation as long as we stay within the 875-930 range. We are in a low-volume neutral range.

I have been stressing careful selection for several weeks now. I was up +1% yesterday (on a -2% down day), primarily due to my gains in AVII, BLTI, DVAX, PLLL, TGB and a day trade in OCLS. If you are a swing trader, it is your duty to stem any bleeding by any means necessary. Half of my positions declined today, and CTIC, KV/A, and UXG remained neutral.

I made a big mistake yesterday by selling ANPI 1 hr before the initial intra-day spike. The stock went on to gain more than +45%. It happens, so you just move on and find the next breakout. These days, there’s always a stock that moves 100% or more in a single day (AXL, OXGN, OCLS, etc). Find them.

I may add some more longs in the bio/pharm sector today and do some rebalancing. I see more opportunities going forward. Remember, selective positioning ensures loss containment.

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