Momentum-Trader Report: 03/16/08

Last week was a very volatile week in the market, and difficult to trade. I have heard and read comments from experienced traders who have said this has been one of the more difficult markets they have seen, so if you’re making money right now, you can feel pretty good about your trading.

With all this doom and gloom in the markets right now, it may seem foolish to buy stocks. But it’s actually a good time to start looking for good performers, because rallies can happen when things seem the worst. As pointed out in the Monday edition of IBD:

Financial blowups — such as Bear Stearns’ — historically are seen near market bottoms. Bears outnumbered bulls in last week’s newsletter survey, another sign of capitulation. - March 17th edition of Investors Business Daily

It’s interesting to note that the weekly chart of the QQQQ could be showing a double bottom pattern:

Now I am NOT saying the market has bottomed. We could still see much lower prices. But it doesn’t hurt to be prepared with a watch list just in case.

Four stocks from Fridays watch list moved past their entry price, but two of them, FSLR and CALM, gapped up over their entry points. For that reason, those trades were not taken; I don’t play gap ups for short term trades if I can help it. The two other stocks that triggered were GG and ABX, both gold stocks.

ABX broke out but retraced. I still have it in the watchlist, as it could be reentered if it does attempt another break out. Since the dollar has no friends right now, gold could stay hot for a while longer.

Because this market has been so volatile, I’ve had to give back some gains on my trades because of raising my stops. I’ve been recording data in the Past Performance page in the hopes of finding a pattern to the stocks I am trading, and perhaps develop a day trading system. One good day trading system is the one at HighChartPatterns.com. They have a daily newsletter with stock picks. The system they recommend is buying breakouts, and using a .3% stop and at least a 1% target. So I back tested my trades from this week using theor system. I didn’t include ECA, because I had removed that from the watch list the day before it triggered, although it was a profitable trade. I also didn’t include CALM and FSLR, because they were gaps ups. Here’s how the stocks on the watchlist did, showing a 0.03% stop and a 1% stop:

Date	Stock	Entry	Day High	0.3% stop loss hit?	1% stop loss hit?	Minimum 1% + Profit?	Minimum 2% + Profit?	Minimum 3% + Profit?
3/10	APA	118	118.30	Yes	Yes	No	No	No
3/11	BZP	19.47	21	No*	No	Yes	Yes	Yes
3/12	HES	98	101.16	No	No	Yes	Yes	Yes
3/13	WLT	59.60	60.20	No	No	Yes	No	No
3/14	ABX	54	54.74	No	No	Yes	No	No
3/14	GG	45	45.85	No	No	Yes	No	No

* BZP hit -.03% stop after hitting +1% target, but would have finished the day with a gain of over 5% using a -1% stop.

As you can see, there were six triggers. Five of them had a gain of at least 1% and only one was stopped out with a loss of -0.3%. That’s a lot better than the market did last week.

The one losing trade, APA, could have been entered again the following day as it tried to break out again from its symmetrical triangle. That trade would have been profitable using this system. I didn’t backtest the trades from two weeks ago, but of the four that triggered, I know two, AKS and CMP, would have been stopped out for a loss.

So this system appears to work well in a market like this. If you think a 1% gain is insignificant, consider this. If you could day trade a $5,000 account (which you can’t in the US), and increase its size 1% each trading day, you would have well over $50,000 after just one year. If you had a $25,000 account, you would have an account value of over quarter of a million dollars. If you use 2:1 margin, half a million! That’s the power of compound interest. Now, this is all theoretical. It doesn’t factor in slippage, commissions, and the fact that it’s simply not that easy to increase your account size like that each day. But it shows how effective a winning system can be.

Trade Ideas for 03/17/08

 

These are trade ideas for educational purposes. Just because a stock is listed here, doesn’t mean it is necessarily a buy when it is triggered. Use your own due diligence. If you decide to trade these, watch volume and market action to determine if it is a good buy. Stops and targets are not listed. Use your own discretion.

 

Good luck and good trading!