A trade from yesterday.

[Naz]

Come the sluggish lunch time period the comp was consolidating at its 2 day highs.I checked the sector graphs and found the semis looked the strongest,so i then searched thru my list of strong semis and found BRCM.This had been looking quite good all day and had been basing at its 2 daily high for a couple of hours.

Now the reasoning is this the indices including the comp looked like they were going to breakout of their two day highs once the players come back from lunch.The semis looked liked the strongest and BRCM was showing a pattern that i know lots of daytraders look for.Up, base,then breakout after lunch.

So next time BRCM bases i buy 1000 at $35.85 with a 15c stop.I reckon its good for a run to $37.So risk reward is about 7:1.

The breakout comes and i'm managing the trade on level 2.We hit some resistance At $36.5.Now i've seen loads of resistances played before on level 2 and there is no heart and soul in this move.When $36.5 is taken out and we start to move it is only because the sector is moving thats driving the stock, the main players dont want to know.I move my stop up in my mind to 10c behind the action and get stopped out at $36.45 for $600 profit.The stock falls 40c.

This was a lazy mid day swing play.I even left it for a while with a stop in place whilst i had a bite to eat.However level 2 gave me a decent entry but more than anything it gave me a good exit at the time.because looking at the graph it looked like a breakout but the level 2 action was telling me this wasnt so and i was able to bring up my stop follow my discipline and go.

Did it ever get to $37? Yes it ran to a high of $37.8.I wasnt on it because i'd moved on.But the move was there for a more patient trader who wanted bigger trailing stops.

I just post this as an example to show how part time Nasdaq traders can look for an oppertunity in the early evening UK time.
I hope it helps.

 

[Grey]

Quote;-So next time BRCM bases i buy 1000 at $35.85 with a 15c stop.I reckon its good for a run to $37.So risk reward is about 7:1.


Like to see those traders who evaluate any trade before getting engaged in the trade.

Range break out is an easy play for the right man. Just a quick tip here. It is known amongst chartist that Break out is often in the direction of previous trend. This is true but a better approach would be, BREAK OUT IS IN THE DIRECTION OF PREVIOUS TREND ONLY AND ONLY IF STOCK/INDEX TREND NOT BEEN EXHAUSTED.

To find out if a trend has been exhausted or not just look at the OB/OS in various time frames.i.e 1 minute, 5 minute, 10 minute (Minor,intermediate,major cycles amplitudes) .you need to see confirmation of OB/OS levels in multi time frame. ( confirmation principle)

It is a good practice to set a stoploss order just below the lower bollinger band (if you wish to be long) to play this strategy.

 

[Naz]

Grey thanks very much for the reply.Its good to have a discussion on different styles of trading.

I would suggest that any trader who dosnt look at his risk reward before he takes any trade is gambling.If you dont have a plan and discipline on every trade its difficult to succeed.

Another point is to acknowledge the market your in and understand its quirks.The Nasdaq very often has major runs after lunch,silly but true.

There are floors of traders in New York who look for consolidation thru lunch and breakouts in the afternoon.They all trade level 2 not bollinger bands.

The next point is that as someone previously said on this board most level 2 traders are very good technical analysis readers.If you like they look at the overall picture and then zoom in to the level 2 to take and manage their trades.

What they've actualy done in many cases is to assess the overall picture,understand where the next resistance might come (ie the next whole number after the breakout) and wait like a panther until the oppertunity is there to strike at a price that suits their stratergy.If the right entry is not forth coming then its passed over until another appears.

By taking scalping entries on managed swing trades a trader will only loose say 15c before he's stopped out and moves on.If his risk reward is 7:1,he can afford to get a number of entries wrong before he hits a winner.I always believed that preservation of capital was an important part of any trading stratergy and taking scalping entries on swing plays using level 2 i think achieves this.