At the time of this writing Philip is the top-performing Spiker (an elite-level member) of SpikeTrade.com. Both trades shown below come from his “How I Won My Gold” posts. Each weekend the Spiker who wins our trading competition during the previous week posts his “Gold”
report (you can read those reports even as a non-member – they’re open to guests).
Philip selects his trades on the basis of fundamental news items that are getting a lot of play in the media. He zooms in on specific stocks using a few technical tools, and backs all his trades with ironclad risk management.
On October 18, 2014 Philip posted a report titled “Managing an Ebola trade with a protective stop – Long TKMR.” He wrote: “Tekmira Pharmaceuticals Corporation (TKMR) is a biopharmaceutical company focused on advancing novel therapeutics. It provides leading lipid nanoparticle delivery technology to pharmaceutical partners. Over the past weekend there was significant news coverage of the Ebola crisis. I decided to pick a drug stock in this area to
leverage on this news event which could send prices higher. Canada-based Tekmira Pharmaceuticals was said to be furthest along among the companies working on Ebola treatment. Technicals showed TKMR price as oversold, near a support level, and on a rising channel. I chose TKMR as my Spike pick.
“On Monday TKMR gapped higher, skipping over my buy limit at $22.80. I decided to raise my buy limit to $23.20 and was filled late in the afternoon. On Tuesday, TKMR had a relatively wide range, but closed near the opening price. On Wednesday it opened higher, and I started raising my protective stop to preserve profits. Once TKMR went 5% above my purchase price, I decided to tighten my stop very closely and was eventually stopped out at $24.49 for a 5.56% gain.
“In summary, the news on the Ebola crisis provided a catalyst to move Ebola drug stocks higher. Due to the relatively high level of volatility, careful trade management through protective stops was needed to preserve profits. Without the protective stop, I would have ended with a 6% loss for the week, as prices fell to close at $21.76 on Friday.”
Notice that Philip uses different Force Index parameters – he applies a 5-day moving average to smooth out Force Index, instead of the 2- or 13-day EMAs that I use. Serious traders typically like to personalize their indicators.
report (you can read those reports even as a non-member – they’re open to guests).
Philip selects his trades on the basis of fundamental news items that are getting a lot of play in the media. He zooms in on specific stocks using a few technical tools, and backs all his trades with ironclad risk management.
On October 18, 2014 Philip posted a report titled “Managing an Ebola trade with a protective stop – Long TKMR.” He wrote: “Tekmira Pharmaceuticals Corporation (TKMR) is a biopharmaceutical company focused on advancing novel therapeutics. It provides leading lipid nanoparticle delivery technology to pharmaceutical partners. Over the past weekend there was significant news coverage of the Ebola crisis. I decided to pick a drug stock in this area to
leverage on this news event which could send prices higher. Canada-based Tekmira Pharmaceuticals was said to be furthest along among the companies working on Ebola treatment. Technicals showed TKMR price as oversold, near a support level, and on a rising channel. I chose TKMR as my Spike pick.
“On Monday TKMR gapped higher, skipping over my buy limit at $22.80. I decided to raise my buy limit to $23.20 and was filled late in the afternoon. On Tuesday, TKMR had a relatively wide range, but closed near the opening price. On Wednesday it opened higher, and I started raising my protective stop to preserve profits. Once TKMR went 5% above my purchase price, I decided to tighten my stop very closely and was eventually stopped out at $24.49 for a 5.56% gain.
“In summary, the news on the Ebola crisis provided a catalyst to move Ebola drug stocks higher. Due to the relatively high level of volatility, careful trade management through protective stops was needed to preserve profits. Without the protective stop, I would have ended with a 6% loss for the week, as prices fell to close at $21.76 on Friday.”
Notice that Philip uses different Force Index parameters – he applies a 5-day moving average to smooth out Force Index, instead of the 2- or 13-day EMAs that I use. Serious traders typically like to personalize their indicators.
On November 15, 2014 Philip posted a report titled “Managing with protective stops – Long HOV.” He wrote: “Hovnanian Enterprises (HOV) designs, constructs, markets, and sells residential homes in the United States. Over the past weekend there were several positive news articles on the recovery of the housing market due to lower energy costs and the potential relaxation to the mortgage lending process. I decided to pick a house builder stock to ride this sentiment. I chose HOV because it had been in a narrow trading range for the past 14 days, building a potential coil to spring higher.
“On Monday HOV gapped higher and opened above my buy limit at $3.70. Since the price action was still bullish, I decided to raise my buy limit to $3.98 and was filled at 1:30 pm. On
Tuesday HOV opened higher than the prior day’s close and continued to move strongly higher. When it rallied 3% above my purchase price, I decided to begin raising my protective stops to protect profits. During this trade which lasted 2 days, I moved my protective stops five times from $3.60 to $3.90 to $4.00 to $4.10 to $4.20, where I was eventually stopped out for a profit of 5.53%. “In summary, the positive housing outlook provided a catalyst to move HOV higher. The price action on HOV confirmed the bullish sentiment. As HOV began to rise sharply on Monday and Tuesday, careful trade management through protective stops was needed to protect profits.”
Trade Management
The sweet spot (what timeframe will you trade?)
Once you become interested in buying a stock, do you ask yourself how long you intend to hold it? Minutes? Hours? Days? Weeks? Years? Forever? This is an important question because different timeframes call for different trading methods. You’ll have your finger on the trigger when day-trading but may go for a week without looking at a stock in which you invest for the long term.
All trading timeframes can be divided into three broad groups: day-trading, swing trading, and long-term trading or investing. Each has its own advantages and disadvantages, but only one is especially suitable for beginning traders.
Day-trading can be profitable for the pros, but is extremely demanding, way above any beginners’ abilities. Day-trading requires instant reactions: if you stop to think, you’re dead. Beginners need to stop and think at every step, which puts them at a huge disadvantage in this deadly serious game. All they get out of it are losses, bruised self-esteem and the memories of a very expensive ride.
Take a look at this chart of Keurig Green Mountain Inc. (GMCR), a popular vehicle among day-traders. It reflects two days of trading, with each bar covering 5 minutes. On day one, the stock stabbed down at the open, followed by a powerful uptrend (area A). A pullback in area B was followed by a new rally (area C) until the closing bell. That rally was hard to trade due to its very small ranges.
The next day began with a quick stab up (D), creating a false upside breakout with a bearish divergence. GMCR immediately collapsed into the area E, and then very suddenly reversed. After retracing its decline it spent the rest of the day going nowhere. There was a lot of activity, but to profit from it and to avoid losing money you’d have to be a top-level pro, operating at high speed, without any hesitation. That was definitely not a beginners’ game.
I am shocked by the ads inviting beginners to day-trade. Their brokers will profit because day-
trading generates lots of commissions, but the outcome for a newbie trader will be the same as for a non-athlete attempting a high-wire walk.
Position trading or investing is at the opposite extreme of time, slow as molasses. Take a look at this monthly chart of the same stock, where each bar represents one month of price action. GMCR rallied from under $3 in 2006 to over $150 per share. That’s one delicious cup of coffee. Hey, barista, pour me another one, with sugar and cream! It looks sweet indeed – but the question is, will you be able to hold this cup in your hands without getting burned?
First of all, the rise in GMCR (and Google, and Apple, and many other leading stocks), so clear in retrospect, was anything but clear early on. There were hundreds of other young promising companies that died, went bankrupt, merged, and disappeared. Even if you had the amazing foresight to buy a thousand shares of GMCR at $3, would you have been able to hold them through area A, where the stock dipped 33%? How about area C, where it dipped 28%? And what about area B – would you have held while the value of your shares sank 85%?
Long-term trading or investing demands a combination of brilliant foresight with an iron will. My hat’s off to you, Mr. Buffett. Not too many mortals can do that.
Let’s stay away from the extremes of day-trading and long-term investing. The sweet spot is in the middle. Swing trading – catching price moves that last from a few days to a few weeks –avoids the interminable wait and gut-wrenching drawdowns of investing. It also avoids having to make instant decisions in day-trading. You have the time to think about what to do with your trade – without waiting too long for the results.
On the daily chart of GMCR we see an uptrend, a reversal, then a downtrend. Green arrows mark the days on which prices dip down into their value zone while the Impulse stops being red,
permitting us to buy. From there the stock rallies to an overbought level near the upper channel line (circled in red), suggesting profit-taking.
After the trend turns down, a savvy trader can reverse the process – sell short in the value zone and cover in the oversold area near the lower channel line. Of course we can use a weekly chart to better define the trend and pay close attention to daily indicators.
One of the traders I interviewed for my book Entries & Exits said: “Some traders hunt elephants, others rabbits. Rabbit hunting is a much more reliable pursuit.” You may not become the hero of the village, but you will feed your family. That’s swing trading for you, and this is why this book, without claiming to be a complete guide to trading, focuses on swing trading.
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