This is the first of what I hope are many month-end recap posts, but felt now would be a good time to start particularly because there were a couple things that started clicking for me that made November a much more consistent month compared to month’s past. Specifically, I scrapped a lot of the chart patterns I used to play and paired it down to just 3 setups I feel most comfortable with. These patterns are:
- Nasdaq multiday breakout longs
- Shorting into major multiday or multimonth resistance
- Shorting overextended gap downs (day 1 or 2)
If it doesn’t fit into one of these 3 patterns, I won’t play it. Through November, I’ve passed up some pretty good trades that had a high probability of being successful that I had to resist the FOMO urge on because I didn’t feel comfortable/confident in the setup.
Let’s go into a few examples of the chart patterns I described above. First, let’s take a look at $HART:
On the daily chart, 11/30 was the clear breakout day over the previous $2.28 high. There was a few days of healthy consolidation in between before surpassing the previous high.
Then, if we look at how 11/30 played out intraday, the first 5-6 minutes of the day started slow, but we had a perk up to the 2.28 resistance level, but then something interesting happened. On the minor pullback, it held the $2.28 level as confirmation the trend had more upside. There was a larger intraday consolidation at 2.33, still a higher low than the 2.28 level so you could lock in partial profits on the dip. Those that were patient had at least 60 cents/share upside.
Now let’s look at an example of a stock that failed to break through a key resistance level and offered us a great opportunity to short. I didn’t have any trades that fit this pattern in November, but pulled an example from $CANF from 11/18-11/19 last year.
$CANF spiked up to the $4.30’s on higher than average volume back on 11/18/14, but pulled back to the low $3’s by end of day. 11/19 gapped up at open, but couldn’t quite reach the same high it had the previous day. This was a great short opportunity. It gapped up further by 11/20 so this is an example where you wouldn’t want to swing it overnight, but this is a high-odds pattern you could play intraday.
Last, let’s look at an overextended gap down. $EFUT offered a great trade opportunity that fit this pattern in November.
$EFUT is an interesting example because it actually fit 2 of my patterns between 11/23-11/25. On 11/23 we had a technical breakout over the previous high $7 high. However and more importantly for this example, we had 2 consecutive days of morning gap downs following 11/23. I typically like to look for a perk into r/g or the previous day’s high before going short to further minimize my risk, but in the case of 11/24 it washed right out at open. I’ll typically still play these stocks, but will play with smaller size since there’s still probability it could have a delayed spike.
This stock also gapped down on day 2 for a second red day. If the first red day wasn’t down huge, you can be reasonably confident that the second day won’t be a bounce day. In this case, the weak open and gap down meant we had more downside. I’m not the type of trader to hold short overnight but this stock had plenty of intraday opportunity on this day.
To recap, these are the only 3 patterns I’m trading currently. As I look back on my performance in previous months, I was trying to play everything under the sun. Hot catalysts, buying into weakness on earnings news or contract wins, but I was finding that my timing suffered and I wasn’t quick enough to get a good entry and I’d end up chasing too late in the pattern. It was also very difficult for me to assess my risk on those types of plays. In each of the 3 examples above, I can clearly define my risk in case my trade hypothesis is wrong. I’ll try to do another recap at the end of the year. They’re a great way for me to look back on what I did right or wrong and hopefully some of you can learn from them too.