stockflags

QSII - Bear Flag

2010-02-08T23:44:00.000Z

QSII is forming a nice Bear Flag. This has all the indications that a breakout to the downside is likely. If it breaks support then it could be a strong downward move.

NTRI: Using Open Interest as an Indicator (Part 2)

2010-01-27T19:09:00.001Z

I recently highlighted NTRI as ahort flag candidate and explained how Open Interest gives us a strong indication of the probable direction of the move.

The trade triggered very nicely the next day and using the money management techniques I explained in here , NTRI is now a free trade with zero risk and with the potential to provide a nice return.

This type of trade is fairly routine using Flags.

Using Open Interest as an Indicator

2010-01-25T21:03:00.003Z

I thought it would be interesting to highlight an often overlooked indicator that can help determine the probable direction of a Flag breakout.

Given the Bearish nature of the markets in the last few days, its not unreasonable to look for potential Short Candidates.

I've picked a bear flag that it forming to the downside.

We would put our automatic "Sell to Open" order a few cents below the bottom of the Flag and set our "Buy to Cover" stoploss somewhere above the flag as indicated in the figure below. I personally keep very tight stops, but this all depends on your risk appetite.

We also have supporting 'evidence' from the Options for this stock:

The Open Interest is the total number of contracts that have not been settled. If we specifically look at the February "At The Money" CALLS and PUTS it can be seen that there are more PUTS than CALLS 2122 vs 1699.

This tells us that there are more Options traders expecting this stock to go down than up.

You can find open interest for free at:

http://finance.yahoo.com/q/op?s=NTRI

Even if this particular example doesn't go down as expected, if you take this approach with all your trading then you will find that you will definitely make more than you lose.

*** TRADE WITH CAUTION ***
Remember - it is better to be outside a trade wishing you were in, than inside a trade wishing you were out.

CMA Breaks Out - Another Risk Free Trade!

2010-01-14T20:52:00.003Z

Yesterday (On the 13th January) I highlighted CMA as a candidate for a Flag Breakout and in my Blog Set Up A Flag Trade With Minimal Risk I explained a very safe way to trade Flags that break out.

Today (1 day later) CMA has broken out, so I just wanted to illustrate how I'm handling the trade.

1. Buy Order for 1000 shares at 10 cents above the highest point of the Flag. In this case buy 1000 shares when the price hits $33.65

2. Then 50% of the position was sold when the stock moved 2% above the initial buy point. In this case at $34.32

3. The stoploss to the downside is placed 2% below the buy point.

4. Now that 50% of the position has been sold 2% above the buy point, the trade cannot make a loss. If the stock subsequently falls and hits the stoploss, the net loss will be zero.

5. However, if the stock continues to climb, we will net a good profit with a risk free trade

Set Up A Flag Trade With Minimal Risk

2010-01-13T22:18:00.001Z

Here is a very simple example on how to set up a Flag Trade with minimal risk.

1. Find a flag - Subject of future blogs - ;)

2. Place a stoplimit order 10 cents above the top of the Flag pole. with the limit 20 cents above the Flag pole.
This means you only buy when the stock breaks out but you dont buy if the stock gaps up.

3. Place a sell order 2% (or whatever you want to risk) below the buy point.

Now this next bit is very important and works very well. It will protect you in these whipsaw market conditions:

4. Place a sell order to sell 50% of your position at 2% above the buy point. This means that if the stock breaks out and manages to climb 2%, then you cannot lose unless it then gaps down. You have sold 50% of your position. Now if the remaining 50% falls 2% below your buy point you will sell the other 50% of your position and you will make no net loss (apart from trading charges).

You can now relax and hopefully watch the other 50% of your position climb upwards. This is likely to happen if you have found a good Flag

5. Place an automatic sell order at some higher point - say 10%, or just manage your trade by watching it.

The biggest complaint we hear is that people get 'Stopped out' to the downside. With this approach you can get stopped out to the upside!

This procedure works very well try it and see.

Advantages:

a) You only buy into the trade when the stock starts to break out.

b) You are only at risk until the stock hits your upper 2% sell point.

c) If the trade trigggers but doesn't hit the upper 2% sell point and subsequently falls, then you only lose 2%

See Figure below where I have shown a trade on ticker 'ULTA', buying 500 shares.

Flag Trades for 13th January 2009

2010-01-13T20:48:00.004Z

JDAS Breaks Out

2010-01-12T19:41:00.003Z

Ticker symbol, JDAS, one of the Flag recommendations on this blog has broken out with a 6% gain. This is a typical example of what can be achieved with StockFlag Trading.

Watch this Blog to learn how to identify Flags that are likely to break out, and learn how to trade them with minimal risk.

A profit has already been taken such that no matter what the stock does now, there will be no loss. Over the forthcoming weeks I will teach you how to trade like this.

Swing Trading Using Flag Patterns

2010-01-10T23:59:00.011Z

Five years ago I commenced a research project to establish whether statistical analysis could be used to predict future stock price movements with a high degree of success and reliability. In the early years of the project a broad range of well known technical strategies were identified and tested. Most failed to perform consistently. Many of these flawed strategies are the base for aggressively marketed trading systems widely available today. A few more intelligent strategies were occasionally competent yet proved unreliable and loss making during periods of higher volatility and fast changing markets.

The research culminated in the realization that there's only one pattern that can be relied upon for consistent trading profits. This is the Flag pattern! So let's examine a Flag pattern...

Bull Flags look like this before they break out:

And after:

A 20% profit in less than a month!!

By now you're probably thinking if it's so easy then why isn't everyone doing it?

Well that's a good question and the truth is its NOT as easy as it looks.

However there are techniques that you can use to give you a consistent profit. You won't win every trade, but on balance you will make money.

This Blog tells you how to do just that.

New To Trading?

2010-01-10T18:58:00.021Z

There are two types of trader out there. Those who believe in Technical Analysis and those who don't. There has always been much debate about whether or not Technical Analysis can actually give you an edge in trading. The non believers say that stock movements are effectively random and you have about as much chance of predicting the direction of a stock move as you have in predicting the trajectory of gas particles in a bell jar!

Being blessed with a strong statistical modeling background and also being not bad at writing software, I decided to prove once and for all whether or not Technical Analysis does actually do any good.

Well, without boring you with the details, I can tell you that you can definitely trade stocks successfully using certain technical analysis techniques. The big problem is that there is a lot of hype around the subject and in many cases, claims are exaggerated out of proportion. But when you cut through all the hype there are certain pearls of wisdom that can really help you with your trading.

Apart from my own personal testing, I've read several books on the subject. If you need convincing that you can make money on the Stock Market then please read Market Wizards: Interviews with Top Traders and The New Market Wizards: Conversations with America's Top Traders. If These don't inspire you then nothing will!

Now, these books won't tell you how to make a million, but they will convince you that millions can be made if you have the skill and patience (not to mention the trading funds).

The good news is that the things that do work are all relatively simple to learn. The trick is to learn to apply these techniques consistently and systematically.

I've been trading with consistent profits for a few years now. I started trading after going on an "Advanced Trading Course" . When I came out of that course it was like Lambs To The Slaughter!! To be fair, the course gave me a very good introduction to trading, but like most things in life, the Devil is in the Detail. If you are just starting out in trading then do yourself a favour and practice with paper trading until you develop your skill. You probably need to do this for at least a year, and when you can show consistent profits, then take the plunge with real money.