How to Use the Pre-Market to Form a Trading Plan - $DKS $PETM

Yesterday (5/20/14) I traded DKS on the short side. The stock was very much In Play, as it was gaping down over 13% on above average volume. Again, I want to emphasis the reason I was trading or even watching DKS that day, on a short-term basis, was because it was In Play and was showing signs of offering some nice low risk trading opportunities. If you're a short-term trader, you have to understand this idea.

Ok, so now to the trade. As I always do, I first pulled up my longer-term charts and noticed that the next potential support area on the weekly chart was $43.50-$44, as you can see from the chart below.

DKS, weekly chart

When first I saw the stock pop up on my scanner in the morning, it was trading around $45.50ish, so I felt there was still a decent amount of potential downside for the stock. With the longer-term technicals in mind, I then "zoomed in" to the pre-market action to refine my trading plan for the open. The stock had developed a range between $45 and $46 in the pre-market, so I felt shorting a potential pop on the open into $46 would offer a low risk entry to try to capture a move down to $45 at a minimum and then look for the larger move down to that $43.50-$44 support area on the weekly chart. You can see this pre-market range as well as my trade management in the charts below:

DKS, 5min chart with pre-market

DKS, 5min chart trade management 

I think I could have done better by holding a portion of my position overnight (let's say 1/4) given the fact that it closed at lows, which suggested it may see follow through to the downside; I booked a good chunk of profits, but I feel that risking a small portion of those profits to try to capture another point would've been a better thing to do. Today, the stock made a low of $42.55. We'll get 'em next time!

Another recent example of how I used the pre-market to develop my trading plan was in PETM today (5/21/14). PETM was gaping down below some support levels on the weekly (~ $61.50) and the next potential support level that I saw was around $55.

PETM, weekly chart

Similar to the trade above, I then zoomed in to the pre-market action and noticed that the stock had traded down near this $55 area and bounced over 2.5 points. The stock (again, in the pre-market) then consolidated above $57. I thought that if the stock dropped out to $57 on the open and saw some buying there like it had in the pre-market, I could look to put on a long position for a move up to $58-$58.50, where it had stalled out before the open. And that's pretty much what I did, as you can see from the chart below:

PETM, 5min chart with pre-market & trade management

So while the post-market action in a stock may not be particularly relevant for a longer-term investor, looking at the price action in the post-market session can be of great significance for the short-term trader.

If you have any questions or comments, please just let me know in the comments section below. You can also follow me on StockTwits and Twitter.

Why I Bought a $h!tload of $VZ at Friday's Close

So as you can probably gather by title I got long Verizon ($VZ) at Friday's close. I just wanted to briefly outline my reasoning behind the trade. First and foremost, are the technicals. I consider myself a technical trader, and so hence, it was the technical price action in the stock that first attracted me. As of Friday's close (5/16/14), the stock is now above all major moving averages on all time frames. It also appears to have broken above a descending trendline on the daily chart. The chart below is an automated chart from finviz:

VZ, daily chart

Technically, I only want to be in the stock above $46 or so. Specifically, my stop is a closing stop loss at 4/25's closing price of $45.94, which also happens to correspond to a weekly close as well. A close below this level would also require a break below all major moving averages and would also invalidate its break above the down trend. Based on Friday's close, this represents a $3.13 (~ 6.37%) stop loss. While this may seem like a relatively wide stop loss, a stop loss less than 7% is consistent with my long-term time horizon of this particular trade. Despite the melodramatic nature of this post's title, I'm not really risking significantly more in this trade from the next. I've simply adjusted my position size to account for my stop loss. It's all about knowing the perspective of a trade and knowing your risk on multiple time frames.

In addition to the constructive technicals of the stock, there is also some fundamental data that I believe makes this a more attractive trade here. Now, I'm not a fundamental trader and rarely, if ever, do I base my trading on fundamental analysis. I've got nothing against its use, but I just don't use it in my trading. With that said, though, I did notice that VZ has a relatively low P/E of 10.98 and a forward P/E of 12.74 (according to finviz.com). In addition, the stock also has a 4.3% dividend yield, which can provide a decent cushion given the expected longer holding period of this trade (the 10 year only pays 2.5%). Also, given the current market environment of large caps and the like being bid up, I think this low P/E, high dividend yielding name could also benefit from what we're seeing in the market right now. While the use of this fundamental data may seem like I'm merely proving the theory of confirmation bias, I'm simply trying to consider ancillary factors that could drive other market participants actions.

If I'm wrong, I'm wrong and I take my loss. Plain & simple. I won't discard my trading discipline for the sake of trying to uphold my egotistical and narcissistic need to be right.

If you have any questions or comments, please just let me know in the comments section below. You can also follow me on StockTwits and Twitter.

Right Out of the Gate - Who I Follow on StockTwits & Twitter

I recently received a question on Twitter asking about any suggestions I had on how to get started with trading. I felt that a blog post would be a more appropriate format to answer this question because it would allow me to elaborate on who I follow and why I follow who I do as, as well as allowing me to provide some personal experiences.

I think before you just start hitting the "Follow" button, though, you ought to do something a little bit more introspective. You first need to define who you are as a trader. I know this can seem all but impossible to do especially when you're first getting started. I understand. It was the same way when I first started. And no one is saying you have to commit yourself to any particular trading strategy this minute, but try to have some type of understanding of your trading personality, risk tolerance, and time commitment (the amount of screen time you're able to dedicate each day). You then have to determine what type of trading product(s) best reflects you. Trading products include equities, options, fixed-income, futures, forex (currencies), and automated trading. Each of these particular products have their separate nuances (for example, index vs equity options, direction-based option strategies or income-based option strategies, etc.). I would venture out and say most people first land on equities because they're probably the most familiar, and some then test out other trading vehicles. I would suggest that you don't attempt to be the so-called "Jack of all trades, master of none" especially when you're first beginning. Experiment with different products but don't jump around too much at first to the point where you never give yourself the chance to fully appreciate a certain trading vehicle.

Once you've landed on a trading product, you then need to determine what type of trading style you're going to employ. You must make sure that this style is congruent with your time horizon as a market participant as well as your overall risk parameters. If you have a very short-term time horizon, then trading intraday or swing trading probably better reflects this time frame. If you have a very long-term time horizon, perhaps using some type of trend-following, technically-based strategy would be best for you. There are just tons of different types of trading styles, from growth investing to value investing to trend-following to momentum trading to swing trading and even scalping. I know this may seem overwhelming, but, again, understand this: no one is expecting you to fully commit yourself to a specific product or trading style tomorrow. In fact, you shouldn't do this. Take the necessary time to learn and develop yourself as a trader/investor. It's different for everyone, but I would say give yourself at least 12 to 18 months to get over the learning-curve. This isn't to say a year into your education you're going to be handed the holy-grail of trading by this omniscient being from the heavens. There is no pinnacle in trading. It's a never-ending journey. Fortunately, though, social media such StockTwits & Twitter can help shorten this learning-curve if used correctly.

Ok, so once you have completed this introspective exercise, you can then begin to click that forever-alluring "Follow" button. What I've done below is listed some people I follow on StockTwits and Twitter and why. This list isn't meant to be exhaustive; if you like, you can simply follow who I follow, but that's up to you. Also, if you're going to follow someone on Twitter, I'd recommend following them on StockTwits as well, and vice versa. I don't intend to speak for anyone or their strategy. I'm simply offering my opinion on who I follow and who I'd recommend for a newer trader to follow. Each person has their individual trading strategy and time frame, but I feel the list below is a good representation of who I listen to on a daily basis. In no particular order, here you go:

• T3Live.com - the educational arm of T3 Trading Group. Notable contributors include @RedDogT3Live @SperlsT3Live @LazT3Live @Levayco_t3live @MikeLeeT3Live @RichAt3live @DarsieT3Live. Plenty of educational content here for different strategies and time frames, including daily market analysis videos before and after the close. This is where I first started. 

• Brett Steenbarger @steenbab - one of the most prolific bloggers in the trading community via his renowned TraderFeed blog. From trading psychology to market structure analysis, @steenbab is a must-follow for any market participant. 

• Brian Shannon @alphatrends - Just yes. Follow. Pure and simple. He was one of the first people I followed when I started. He uses "unbiased technical analysis" and lives by the self-proclaimed mantra that "Only price pays." His number one concern is risk management and playing defense when it comes to the stock market. Click the Follow button right now. 

• Jon Boorman @JBoorman - a magnificent trend follower. The simplicity with which he trades is a thing of beauty. Completely transparent with his trading performance. Tweets out what he's watching regularly. He focuses on price and blocks out the noise. A gem. 

• Joe Fahmy @jfahmy - combines growth and catalysts along with the price action. I don't think there's been a post of his I haven't retweeted. I absolutely love when he does his Weekend Video segments, providing some insight into what he sees in the market and how he's approaching things. Another must-follow. 

• David Blair @crosshairtrader - systemically follows the price action in the market and individual stocks through his self-developed process. He's constantly tweeting out charts that he's watching or that have triggered a proprietary trading signal. Embodies the need for simplicity in trading. 

• SMB Capital - hands down, some of the best short-term traders I know. They're a proprietary trading firm in NYC. Their trading blog is one of the most valuable places to gain insight into how a professional trader thinks and acts (I've actually contributed to their blog as well: http://www.smbtraining.com/blog/author/jhuska). Even if you're not a short-term trader, their philosophy of elite performance is applicable to any developing trader. SMB contributors (and co-founders) include @sspencer_smb @MikeBellafiore. 

• Jerry Khachoyan a.k.a. The Armo Trader @TheArmoTrader  - A day trader who focuses on what's moving and in play. He's always on top of breaking news and economic data. I've traded with Armo before, and in my experience he's one of the nicest guys and equally as good of a trader. Also a big NBA buff. 

• Ben C. Banks @BenCBanks - a fellow teenage trader like myself. Describes himself as an equity momentum trader. An inspirational story of a young investor navigating the market. 

• J.C. Parets @allstarcharts - a pure chartist. Focuses on what price is telling him, develops good risk/reward setups that make sense to him. Simple enough right. Also a big Miami Sports fan.

I hope this blog post serves as a good starting point for newer traders. If you have any further questions or comments, please just let me know in the comments section below. You can also follow me on StockTwits and Twitter.

A Bunch of Trade Reviews - $UBNT $GMCR $RAX

The scope of this post is relatively simple. I just wanted to share / review a couple of recent trades I made (all on an intraday basis). So let's get started:

First one up, UBNT. I was fortunate enough to have one of my best day's in this stock after fortuitously getting hit on my offer above $36 right on the open, and I managed to capture an average of $4 on the downside. Again, I'm not here to gloat, but I instead want just want to walk through why I was thinking short and where I was looking to potentially cover intraday. The chart below is a daily chart of UBNT showing what was once support became resistance (where I was looking to short on the open on a potential quick opening "pop") around $36-$36.50.

UBNT, daily chart

While the stock was gaping down, I wanted to wait for it to start trending before I committed real risk to the trade. So shorting into the quick pop on the open above $36 put me in a position of strength to then add if the stock decided to begin trending down. The next longer-term support area I was watching was $30-$31; in my mind, the closer the stock came within to zone, the less favorable the risk/reward became on the short side. Below is a chart of my trade management on 5/9/14:

UBNT, intraday 5min chart

Notice that I made 2 distinct trades: the first trade was the short into $36 and covering the majority of the position once 4 points in-the-money. The next distinct trade I made (again on the short side) was re-shorting the stock after seeing it fail at VWAP. This second trade was relatively simple in my mind. I was shorting into VWAP with a stop above it for a Low-of-the-Day Trade (looking for the stock to test or make a new intraday low). Again, I just wanted to emphasis that both of these short trades in UBNT were distinct in their reasoning and trade management

Ok, now for the second trade review: GMCR. The stock was gaping up today (5/13/14). I didn't play the stock early in the morning, as I was busy trading RAX (discussed later). I decided to get long GMCR in the late afternoon after it had pulled back to its early morning support. VWAP was nearby the support level, so I felt comfortable in knowing where I was wrong. I was looking for a new highs, but I was stopped out for a loss. It happens! Let's move on.

GMCR, intraday 5min chart

Last one up is RAX. RAX was gaping up into what I viewed to be potential resistance. Similar to the UBNT trade, I thought if I could initiate a short on a quick opening pop, I'd be in a position of strength for what I thought could be a multi-point down move. This is commensurate with the so-called theme I've been seeing lately on a short-term basis, aka HIT THE BIDS. Below is a daily chart of RAX highlighting this resistance zone (previous support):

RAX, daily chart

After the stock put in an opening pivot high near my resistance "zone" I threw out & was filled on my $31.37 offer (I was risking 25 cents). Sellers then began to assert themselves at $31 on the tape. I tried adding to my position with a stop above VWAP, which was close by. I was stopped out of my extra shares on the first attempt, but the second time around ended up working.

Below is a 5min chart delineating my trade management:

RAX, intraday 5min chart

Let me know if you have any questions or comments.

Twitter: https://twitter.com/MarketPicker
StockTwits: http://stocktwits.com/MarketPicker

A Ramble: A Common Short-term Trading Pattern and My Bird's-Eye-View of the Market

With this being only my second official blog post, I thought I would do something that I do rather well: ramble on for a bit. I'll at least provide a little structure to my incoherent stream of thoughts though: 1) A theme that has been working well this earnings season on a short-term basis; 2) What to do during this chop-fest of chop (or what not to do), as well as my overall stance on the market on an intermediate basis aka from a bird's-eye-view. 

1) Short the gap ups; it really is that simple. If the powers that be decide to gap up a stock for whatever reason, short the hell out of that thing right on the open! Clearly, my glib analysis is meant to be facetious, but I have seen this pattern of gap ups being sold despite what may be considered "good numbers." Case in point, take a look at the recent action in DATA, SCTY, YELP, NFLX, RIG, an YUM, to name a few. They gap 'em up only to be hit down even harder. My debut post even discussed my recent trade in DATA after it gaped up 

If you're not fortunate enough to get a gap up to short, they'll just gap you down to the ground instead, a la WFM, FEYE, FUEL, UBNT, GNC, MCP, ZU, GOGO, and of course TWTR (wasn't necessarily earnings related). It seems the common theme is simple & clear: HIT THE BIDS!

There are some exceptions to the rule though. Punch up a chart of EA, GMCR, MDLZ or SWKS. These lucky ones have somehow managed to actually hold their gaps. It will be interesting to see if names like these can follow through to the upside or instead just range and go sideways. 

2) So what to do? Again, I'll try to make this as simple as possible: DO NOTHING! I don't say this out of some type of anger or hatred towards the market, but I honestly just don't see anything appealing to me on an intermediate-term basis / swing long perspective. Note: this is my opinion; do what works for you. The only position I have on right now whatsoever is this WFC, which I've been holding for 3+ years & I'm not looking to sell any time soon, despite @allstarcharts despise of the financials currently (a must-follow by the way). 

If you must do something, do as @The_Real_Fly says and just buy the damn Old Man Portfolio There's no disputing the fact that these names, or as I like to call them - the Old Fart Portfolio, are showing great relative strength to the market right now. For me though, I'd just prefer to sit in cash for the next several months until the market changes, as I believe it will once the summer is over. I think until then, though, this frustrating market will continue, so take your trades, focus on what's In Play, and don't expect too much. Know your strategy and know your process (http://ivanhoff.com/2014/05/08/know-process/). Understand if the market is conducive or not to your trading personality right now or not. As for me, other than intraday trades, I'll be sitting on my hands for the next several months. 

You Can't Catch Them All

The two names that I traded intraday today (May 6, 2014) were TWTR & DATA. Both had fresh news and were In Play. First up, TWTR finally had their lockup expiration today aka "the worst kept secret." This was an event that everybody and their dog knew about, so I was looking for some type of flush right on the open to get long for a potential bounce. The stock opened lower, held below VWAP & $35 level (offered a nice short entry too) so I waited for my "flush." Around 11:30am, the stock saw some buying at $34 and it appeared to be breaking its downtrend from the pre-market, so I got long, scalped some for about 50 cents and was later stopped out for a minor loss. We never really got that flush; instead, the stock just bled all day long and finished on the lows. Oh yeah, and I never got short!

TWTR intraday 5min chart

The next stock that I traded more than made up for the minor loss I suffered trying to play the long side in TWTR (although it's questionable on the lost opportunity of missing the short in TWTR). Anyways, DATA was gaping up pre-market into some potential overhead resistance. I knew this stock can be "whippy & wicky" so I had to trade with relatively small size and wider stops and had to pick my spots carefully. My short zone was $62-$63 due to recent resistance levels and the pre-market top. So my plan was to look to put on a small short as close to $63 as possible. Price confirmation for me would see the stock quickly back below $62 and holding below. 

DATA daily chart

DATA 5min chart showing pre-market resistance 

The stock saw a quick dropout on the open down to $58 before rebounding back up to $62.95. After seeing the initial failure at $63 I shorted the stock at $62.30 with a stop for about 90% of my position above $63.10. I took covers down in the $58.80s and got flat at $57.20. 

DATA 5min trade management 

The point of this post isn't meant to act as an outlet for me to showcase to you my inflated sense of myself for being able to capture 5 points intraday (though that is debatable). I lose all the time. I know you've all probably heard the saying "let your winners ride & cut or losers" or something along those cliche lines. Despite its cliche nature, it's a very simple yet powerful rule to trade by, no matter your time frame, trading style, or trading product.