Buy GRMN - Descending Triangle Breakout - 84% Chance of Success

Back when Thomas Bulkowski did his massive studies on price patterns in the equity markets, he found that a descending triangle, a traditionally bearish pattern, was extremely dependable and profitable if it broke out to the upside.  84% of the breakouts hit their price target, so these types of breakouts are certainly worth taking advantage of when they occur.

We're looking at Garmin Ltd, (GRMN).  Of course, click on the picture to view the full size image.

The breakout occurred two days ago, but the risk/reward ratios are still favorable toward taking a trade.  The standard risk/reward is 3.5 (borderline), but after adjusting for probability, it becomes 18.38 (very good!).   The method of executing the trade is outlined in this video below.  Click on the link to view.

GRMN Video - Click Here

Here's another thing that will work in our favor in this trade, and may give us a clue to the long term performance of this stock.  Take a look at the point and figure chart, a chart made to filter out noise and time distortions.

The patterns outlined in this chart give us two targets.  The first, 40, was my intermediate term target, but there is also a target at 49, which is dedicated to the long term.  Needless to say, the bull is in control.  There was also a recent buy signal.

If you want to know more about point and figure analysis, I highly recommend looking into the brilliant work of Jeremy Du Plessis.

Remember, the trading strategy is outlined in the video.

Happy trading
~Christopher Diodato

An Overview on the Broad Markets - What Happens Next?

Today was a big day for the markets.  We had a broad rally lead by the tech sector, with Intel's strong earnings, and the Nasdaq finished up 2.10%.  The other two indices finished the day up slightly more than 1.35%.  My trader colleagues were all screaming, "I'm covering my shorts tomorrow!"  Let's not get wrapped up in emotions.  Take a step back.

Pictured below are four major indices that symbolize the broad American market, $DJI, $COMPQ, $SPX, and $RUT.  Each one, minus the Russell 2000, is tracing out an ascending triangle, a common bullish-biased pattern.  The patterns are somewhat sloppy, aside from the S & P 500, so if possible, I would prefer to place a breakout trade on that.

 

Click on the image to enlarge and sharpen.

With the ascending triangle patterns in place, we can have a bullish bias, but do not take action until there are definitive breakouts.  Today, all three of those indices finished the day right under their resistance line.  In addition, they each gave a stochastic buy signal.  A breakout may be pending, but hold on the trigger until we are sure.  We don't want another BVN tragedy.

I have a stop order on UPRO (a triple leveraged S & P fund) placed at 85.10,  about 1 percent above the resistance level.  Whether that is filled or not, we'll have to wait and see.


Bottom line:  Don't get excited yet.  The bear is anguished and retreating, but it may be a trap.

Happy trading,
~Christopher Diodato

FIG Head and Shoulders - Reversal Pending

I'm posting this perhaps a week before we may be able to actually make a trade, so keep FIG on your watch list.

FIG is an investment group that took a major nosedive since its initial IPO. The downtrend has been in full force for years, and this is a little "blip" in the downtrend. Perhaps they leveraged themselves too much right before the stock market tanked. Anyway, the six month uptrend is showing signs of reversing with a very reliable pattern called the "head and shoulders."

Click on the image to enlarge.

I posted the strategy in my video, but here are the cliffs.

Enter short @ 5.12 stop
Exit with a loss @ 5.51 on close (Also, reverse the position)
Target @ 3.50
Probability of success: 55%
Probability of failure: 45%
Probability adjusted risk/reward ratio: 5.08 (Over 5, take the trade)
Earnings is announced on May 2, so be prepared to take action if there is a major swing.

Here's the video, which includes the strategy and all of my analysis.

FIG Head and Shoulders

Happy trading!
~Christopher Diodato

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