Lecture 1: The "Oooops set up"

Sharky

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For anyone who didn't manage to make it to the lecture this evening. Here is the full transcript for you to view at your leisure:

Good Evening all, & Mooms welcomes you to his trading Lecture Extravaganza.

I strongly believe that to be a professional trader, a person needs to have only 2 to 4 set-ups that they can apply again and again in the market.

By having only a few set-ups, the trader becomes a specialist who can pull profits out of the market with ease.

For this class, seminar I will be showing you a set up which has an accuracy rate of over 70%.

It will apply equally well using the daily, weekly, monthly and quarterly charts.

For today’s lesson I will be using the daily charts and going over one variation of the buy set-up.

By the time I finish, you should be able to apply this variant with relative ease, and understand the other variations on the set-up.

Before I jump to the set-up I'd like to give some intro and background info, this will lead to a better understanding of the set-up.

You always want to understand the philosophy behind any set-up as the set-ups themselves will change.

The core Idea's will not one of the most dangerous assumptions that novice traders tend to hold is that the market is a big happy place where we are all brothers and sisters.

They believe that "We are all in this together to get rich".

Relatively quickly they learn that this idea is not true and that there are three groups of people on Wall Street.
One group is on the way out the door having lost a good deal of what they came in with. The other group are those happy campers described above.

The third group are those known as professionals.

Week in and week out like clockwork they take the money from the happy campers, who are obviously soon not going to be very happy.

When I came into the market, I was like anyone else.

I believed in the big happy mix and that we are all in this together to make money. After several months of trading I had lost over half of what I came in with, and it became obvious to me that my conception of things was wrong.

Not wanting to give up on trading, which I still knew was something which had more potential than anything else in the world when it came to the amount of money I could make, and the freedom I could enjoy motivated me to learn how to never become a member of our first group, and to strive to be a member of that third group.

Two things lead to this.

The first was finding someone willing to show me the ropes. Trading is like any other skill or business, it’s a very rare person who learns it alone, with no help along the way.

With so many (expensive) pitfalls along the road to success, it is essential that a new trader find an experienced trader who is willing to help them along that path. The next step was for me to study the mistakes I made as a member of our second group.

The reason for this should be obvious, for as Alan Farley says, you must know your opponent well. If I wanted to be a Professional, I needed to know the mistakes made by those who I would be taking money from. Knowing, and taking advantage of, these mistakes became the key to my success.

When the buy was first mentioned by other, more astute traders, I was too nervous to commit. I, not wanting to throw my money away wanted to find that sure thing. Once a stock had proven to me, beyond a doubt that it was indeed strong I would buy.

My buying would almost always occur near the top of the move. Then as the stock moved lower I would remain in, hopeful that soon, very soon things would turn around.

After all, the stock market is a friendly place; we are all in this together to make money. But, unfortunately for me, the stock would continue lower. Finally, sick with the market, and myself I would exit. Almost always, you guessed it, near the bottom of a move.

Since I am not a computer wiz I could not figure out how to get real good Real Tick images in the stocks I lost my money in. This might be just as well since it could prove painful to relive it at this point. But, I did find a stock that provides a good representational example of my ordeal.

http://www.tradingfrommainstreet.com/ooops/ALLY.gif

Has everyone got the chart?

This type of action is repeated day in and day out in the market, with the professionals, already in at earlier levels selling to the novice, or buying at a discount from a novice as it moves lower.

Fortunately for us, novice traders are fairly easy to predict. The action that many of them follow closely follows my early action. Because we know what they will be doing, we have an opportunity to profit.

How many of you can see yourselves in this chart?

And relate to that?

How many can relate to the trader in this situation?

Have been there and know this feeling well?

That means you can profit from it!

A stock must have experienced a strong one directional move which puts novice traders on the wrong side of the market. This strong one directional move can usually be identified by wide ranges and by the lack of upper and lower shadows on the daily candlestick chart.

When you see this, you know that, more than likely, novice traders have entered the game with shaky confidence.

We next look for a reversal of this bar.
When the reversal happens there are a few things going on.
First, there are professionals buying the pullback because professionals know that the right kind of pullback presents a buying opportunity for them.

Second, there are the novices who had earlier been in the stock that now realize they made a mistake and are rushing back into the stock so as to not miss it this time.

They say something like "Ooops, why did I sell that stock yesterday, now everyone is buying it. I will not miss it this time".

This thought process and the action that results from it leads to our Oops buy

The charts I have put up for the lesson today all occured this summer. I'm simply using the charts from then because I have the appropriate writtings on them to help you see were to enter and exit

Overall the setup works quiet well

As I stated at the start of this lesson, this is one of the most powerful setups I know of.
The reason being the extremely powerful psychological forces of panic and greed that drive it.
and again, understand the concepts and you will always be fine.

http://www.tradingfrommainstreet.com/ooops/THQI.gif

let me know when you have this URL up please.

One concept that is forever drilled into people (and which is mostly valid) is that your better buying opportunities are going to come on pullbacks in strong stocks, or at the very least stocks which have recently been strong.

That is the first thing you need to look for in your hunt for Oops buy setups.
A stock which is currently in, or has very recently been in, a strong uptrend. Looking at the daily chart of THQI one can clearly see this to be the case.
At the time of this setup, video game stocks were all the rage and many on Wall Street were expecting the nations 12 year olds to lead us out of the bear market via thier buying of video games.
As such THQI was showing a strong daily uptrend

On June 14th the stock fell to strong selling. The sellers opened the stock right at the high of the day, and closed it very near the days low.
This is the second criteria for this version of the Oops buy setup.
When I scanned on the night of the 14th, I made note to watch THQI on the 15th for potential buying opportunities.
http://www.tradingfrommainstreet.com/ooops/THQI1.gif
please go to this URL
let me know when you get there

The next day the stock did exactly what we would want it to do for this particular version of our set-up.
The sellers, still scared from the prior day acted more aggressively at the open than the buyers and the stock gapped down.
For several 15 minute candlestick bars the stock moved lower in the morning, but then it found a stable area and started to move higher and soon crossed above the $51.10 which was the closing price on the 14th.
Once this occurs we set a protective stop under $48.90 which was the days low and we are now set. This provided us the criteria we needed to go long THQI.
So for an Oops buy to occur we want to see four things.
1) A strong stock.
On the prior day the stock must have experienced "panic" type selling which we can see in the form of the Wide Range Bar.
On the next day the stock must gap lower. (For this version of the set-up)
After gapping lower, once the prior days closing price is taken out to the upside traders will go long with a stop under the days low.
Following up on THQI let us now look at the exit.
http://www.tradingfrommainstreet.com/ooops/THQI2.gif
please go to this URL.
As THQI moved higher we knew it would meet with around the area of the prior days basing action. The reason for this is that prior support, once broken will become new resistance.
For this reason, we entered THQI expecting a move of about $2.20 to $2.50 for our risk of $2.20
(I will address the risk/reward issue at the end of this class)
This is a risk we are willing to take because we know the set-up has a high degree of accuracy and has rewarded us very well in the past.
Ultimately THQI moved $3.97 higher over the course of the day, and by the time it finally topped out the next day it produced gains of up to $8.73.
We as professional traders however took or safe gain of $2.34 knowing that in the long run, this is the only way to last.
Next I have some charts up of Ballard Power Systems, which is another stock that we traded using this set-up.
When you look at this chart, you will have to bend your mind a bit and understand how to deal with the concept of the trade...not the absolute rules of it.
Nothing is absolute in the market
http://www.tradingfrommainstreet.com/ooops/BLDP.gif
let me know when you got it

Ballard Power is a "Fuel Cell" stock.
I don’t exactly know what a "Fuel Cell" stock means or what it does, but it has to do with alternative energy and this was another hot concept last summer.
So, in a very loose way I would define the stock as strong simply because people are apt to be looking for a reason to buy this kind of company given the sentiment that was in the market.
A few things to notice on this daily chart. First is the obvious wide range day on that sell off. This brings the stock to our attention and the next thing is the increase volume on the sell off.
This is just one more good sign to us that the amateurs are in a state of fear.
http://www.tradingfrommainstreet.com/ooops/BLDP1.gif
Here is our intraday Chart of BLDP.
On the 20th you can see that the stock gapped lower allowing us to follow the stock using this set-up.
It opened nearly at the low of the day and rallied from there.
Once it traded above $39.80 longs are put in with a stop about $0.80 away being that the day’s low was $39 and our stops go there.

http://www.tradingfrommainstreet.com/ooops/BLDP2.gif
last chart
this chart now will show our exit areas.

One of the core concepts of technical analysis is that prior areas of support, once broken will become resistance.
We can see that back on the 18th, the area around $42 was serving as strong support for BLDP.
Once it was broken, a strong sell off followed, telling us that this will now be a strong resistance area and a good target for us. In this example, for our risk of $0.80 we got a gain of $2.30.
This means we got a gain of about $3 for every $1 we risked. On a set-up which is going to be profitable in most cases we take it!!
 
 
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