These are stocks that jump 100%, 200% or more in a span of several days. The top of the pattern is marked by buying exhaustion and the best way to determine the exact top is to look out for the following candlestick patterns: doji, gravestone doji, long-legged doji, shooting stars, dark could covers, and bearish engulfings. All patterns are typically accompanied by the highest volume bar on the entire chart. Entering on the topping day may provide more profit, but it is riskier. The next day is considered the confirmation day in which the stock breaks down. The 2nd option for entry (less risk) is to enter at the very beginning of the breakdown.
Archives of “exhaustion” tag
rssChess Lesson That Can Really Help Profits
There are useful parallels between chess and trading. In the below quotation there is actually more than one lesson for those willing to consider it.
Pal Benko, a chess grandmaster said:
“Patience is the most valuable trait of the endgame player. In the endgame, the most common errors, besides those resulting from ignorance of theory, are caused by either impatience, complacency, exhaustion, or all of the above.”
1) Ignorance of theory
2) Impatience / Patience
3) Complacency
4) Exhaustion
See this 1 chess lesson morphed into 4 lessons:
Let me have a little go at highlighting some things that we can perhaps learn from this chess quote that apply to trading. (I’d love it if you told me yours in the comment section below. Go on, be brave and join in – dialogue is good :-))
1) Ignorance of Theory
Ed Seykota has been recorded as saying something like: until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
Naturally with trading, getting comfortable with the basics is an important step. Make sure, however, not to end up one of those paralysed and stuck in student mode. At some point you have to be willing to move from student to trader. One of the useful ways of ‘spending time with traders’ if you are not employed in a trading firm is to utilise things like Stocktwits, trading groups, forums etc. (more…)
Make Friends
The trend is your friend. Trading is like swimming. You can swim with the current or against it. In a survival situation, you can swim with the current forever. Outside factors such as water temps, need for food and sleep are another matter, but as for pure swimming ability you could swim with a slow or strong current forever.
Not so with swimming against the current. You will eventually tire and drown. That is an absolute certainty. Unless you find intricate ways to reserve kinetic energy and escape the current’s ravage for periods of respite, you will die. The same concept is true for trading with market direction versus against it. If I only had Rs 10000 for every person I heard say, “I’m a contrarian… I don’t follow the herd” through the past fifteen years, I’d have Rs One Crore for free money right now. Any idea where all those market contrarians are today? Other professions than trading. (more…)
Do's and Dont's For Traders
- Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
- Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
- Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
- Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
- Don’t buy up into a major moving average or sell down into one. See #3.
- Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
- Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
- Trends test the point of last support/resistance. Enter here even if it hurts.
- Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
- If you have to look, it isn’t there. Forget your college degree and trust your instincts.
- Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.
- The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t expect anyone to change the channel.
- Avoid the open. They see YOU coming sucker
- 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
- Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
- Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.
- Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
- Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
- Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight.
- Beat the crowd in and out the door. You have to take their money before they take yours, period.
The Ten Most Foolish Things a Trader Can Do
In the spirit of April Fools Day here are the ‘Ten Most Foolish Things a Trader Can Do’. In no particular order of foolishness.
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Do not trade foolishly my friend.
1930-The Gartley Pattern -For Traders
A leading technical analyst of the 1930s created a method for trading that is still applicable today. Learn how to trade market turning points based on Fibonacci retracements and market psychology with the Gartley Pattern.
Many traders ask how a trading method that is 77 years old is applicable today. When you combine timeless tools like Fibonacci Retracements with great risk: reward ratios, it’s easy to see why this method is so popular. If those aspects of a trading method appeal to you, it’s my pleasure to introduce you to the Gartley chart pattern.
What is the Gartley Pattern?
The Gartley pattern is a powerful and multi-rule based trade set-up that takes advantage of exhaustion in the market and provides great risk: reward ratios. The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley’s book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time.
The Gartley pattern is based on major turning points or fractals in the market. This pattern plays on trend reversal exhaustion and can be applied to the time frame of your choosing. The other key that makes this pattern unique are the crucial Fibonacci retracements that come together to fulfill the plan.
There is a bullish / long / buying pattern and an equally powerful bearish / short / selling pattern. Much like you would find with a head and shoulders pattern you buy or sell based on the fulfillment of the set up.
Buy & Sell Gartley Chart Pattern (more…)
10 Foolish Things a Trader are Doing
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Complacency & Exhaustion
Complacency
When I think of complacency two major things come to mind:
Often a traders biggest loss comes after a string of winners. This is well documented and suggests to me that complacency is present. The ‘every swing I take is a home run feeling’ or the ‘I can do no wrong feeling’. Sure enough when in this state the market is all too willing to smash you back down hard as a reminder of your mortality.
The other thing I think of are traders who have taken their foot off the gas. Who have decided that their approach is the only thing that works and will never need changing. You have to stay on your toes. The chances of the same approach working over and over ad infinitum are slim. It may not need a complete overhaul and rather only subtle changes but it is complacent to believe something is a sure thing.
Exhaustion
Most traders are imminently aware of their account balance – what I think many don’t think about is their emotional balance. Trading can take a serious toll on your emotional balance. It is a competitive endeavour that requires decision making under stressful conditions. Each trade you chose to assess and then take uses up some of this emotional capital. You need to be aware of this. Not doing so leads not only to exhaustion but possible burn out.
As I said I’d love to read some examples from you on these points as they pertain to trading in the comments section. If you’d like maybe we can go into these areas in more detail in the future.
10 Foolish Things a Trader Can Do
01. Try to predict the future movement of a stock, and stay in it no matter what.
02. Risk your entire account on one trade with no stop loss plan.
03. Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
04. Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
05. Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
06. Trade your opinions, not a quantified method. (more…)
Trading Do's and Dont's
- Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
- Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
- Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
- Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
- Don’t buy up into a major moving average or sell down into one. See #3.
- Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
- Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
- Trends test the point of last support/resistance. Enter here even if it hurts.
- Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
- If you have to look, it isn’t there. Forget your college degree and trust your instincts.
- Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.
- The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t expect anyone to change the channel.
- Avoid the open. They see YOU coming sucker
- 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
- Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
- Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.
- Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
- Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
- Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight.
- Beat the crowd in and out the door. You have to take their money before they take yours, period.