Our Best Friend - The OCO Order...Also, IAG Breakout Pending!

An OCO (one cancels other) order is the best friend of a breakout trader that does not want to miss a move in either direction. The logic is very simple, and the benefits are numerous.

Placing an OCO stop order when trading breakouts:

• Enormously limits risk
• Reduces margin requirements while having the added open exposure of two orders
• Allows you to only enter one order, but trade in two directions
• Allows you to place a "good till cancel" order and never think about the trade again until it's filled

The main benefit is the risk limiting effect.  Imagine this.  In some sort of doomsday scenario, you trade a breakout with two separate orders.  Since you are not at your computer, the order is filled as the prices hit your stop levels.  The price breaks to the upside, your buy order fills.  Then it breaks to the downside in a quick whipsaw, and your short order fills.  You are now both short and long the stock...not good.

Anyway, to get you started with OCO stop orders, here's a trade for tomorrow.

IAG is making a double top right now, which may turn into a double bottom, which could turn into a long rectangle.  Nobody knows, but we'll prepare for anything!

Our support and resistance levels are 21.50 and 23.40, respectfully.  To take advantage of a breakout, we will place a "good till cancel" OCO order with a "21.38 stop sell" order (21.41 if you're feeling risky) and a "23.56 stop buy" order.

Now we forget about it until the order is filled one way or another.  Perhaps have a glass of wine, go to the beach, whatever!  Our stop level once an order is filled will be the support or resistance level it broke through when it initially broke out.  We have a nice, simple trade opportunity here.  My orders will be placed tomorrow morning.

Happy trading
~Chris Diodato

XING - Complex Trade Opportunity

I really hate penny stocks. I hate how these "penny stock newsletter" groups can make thousands of the backs of idiots that see ads in the sidebars of web pages (looks to sidebar of the blog). Never listen to these people

But just tonight, I saw a technically strong situation in a semi-penny stock XING (over $2, a personal label). Both a symmetrical triangle and ascending triangle were forming. To top it off, there was a stochastic buy in the daily chart today!

Click to enlarge image.

So here's the strategy, and I am working very carefully to manage risk. We will exploit both pattern breakouts with multiple positions. The first trade may only result in a break-even. FOLLOW ALL DIRECTIONS and enter all orders at once

Enter with a stop buy @ 2.26
Set a trigger to enter a trailing stop sell of 25 cents once the price touches 2.40
Enter the second trade with a stop buy @ 2.42
Your sell stop will be 2.28 in case this trade fails.
Enter a limit sell order @ 3.00

Risk= $0.11+$0.14=$0.25
Maximum Gain= $0.74+$0.58=$1.32
Probability adjusted Risk/Reward=
(66%*.74)+(75%*.58)/
(34%*.11)+(25%*.14)=.9234/.0724=
12.75 (favorable)

Our risk is limited and defined very well here, so take the opportunity. Do not be tempted to over-leverage yourself just because the stock is cheap.

Happy Trading
~Christopher Diodato

Taking Our First Loss - BVN

So today, the formation crashed, and BVN stock plummeted nearly five percent. Generally, I like to wait an see if the stock closes beneath the stop level. In this case, the level was 41.67. However, my emergency stop, placed under the next support level at $40, was activated, causing a large loss.

The trade was risky from the start, with only a 36% chance of an upside breakout from the descending triangle, so it would have been wise only to enter the trade partially, and then finish the entry on a definitive breakout.

I'll make a note for trades from this point foward.

Entry: 42.62
Exit: 39.85

6.5% Loss

I will look for a new trade later tonight as this market turns sour.

~Christopher Diodato

Stock Gaps and Stock Climaxing -They get Excited, Climax, and Crash

I suggested that EXK was an attractive buy to my friends over at bodybuilding.com a few days ago. It was tracing out a beautiful flag formation and was ready to break upwards about 25%

Subsequently, it broke to the upside 27% and made several gaps. The different types of gaps are useful to know about when choosing what course of action to take.

The first gap is a breakout gap, as prices penetrate the upper level of the pattern and break to the upside with incomparable vigor. This is usually an excellent place to enter a trade.

The second and third are runaway gaps, which signal a move that is not planning on stopping any time soon. Note: These gaps do not get filled completely.

Finally, the climax, or exhaustion gap. This happened today. Prices gap up one last time, but quickly reverse on high volume. As the gap is completely filled, I move to exit the trade with my tail between my legs. A climax after several very volatile price swings often signifies an impending large reversal.

It did. Much like after a human climax, it got tired, and crashed. EXK finished down 10% at $11.17

Here is the chart that shows each gap. See if you can tell the differences. Note that the final gap was filled within five minutes, so it is difficult to see.

Gaps generally work in our favor if they are breakaway or runaway gaps, but when a climax is spotted, be prepared to take action fast.

I will be looking for trades tomorrow night and will post my findings.

~Christopher Diodato

An Update on BVN

Just a notice to everyone. BVN broke through its stop level today, and if we followed the strategy outlined in the video, we would exit the trade with a loss if it closed below 42.00.

Today's low was 41.69, which probably raised concerns among the viewers here.

Do we prepare to exit? Not unless the close is beneath 41.67. Wait, what?

BVN's ex-dividend date was today. The book value of the stock decreased by exactly $0.33 per share. We must correct for that by adding our dividend amount to the current stock price.

Here is BVN's chart since NOV. Click on the image to enlarge and sharpen.

Add $0.33 cents to the current stock price, or lower all previous stop levels by the same amount, and we adjusted our trade for the ex-dividend gap.

This is often overlooked, but essential to being a successful trader.

Happy trading,
Christopher Diodato