An Excerpt from the Timely Trades Letter.
The trading plan from the last Letter was to continue
trading longs while the market remains above the ascending
trend line drawn through the lows of 02/05 and 02/25 and
04/01; with a note that ‘the best time to pick up new trades
is during retests and bounces from this trend line’. I
followed the plan and picked up several long positions on
Mondays trend line bounce. The markets bounce generated
profitable moves in several of our setups including PNRA,
LPX, DLM, AVID, TWX, and HNR. I took profits in DLM when
it hit the upper band, and will continue to use that as
a successful exit strategy on swing trades, until the market
breaks above minor horizontal resistance in the 2555 area.
Since the market is approaching minor horizontal resistance,
I do not want to overstay my welcome in any particular trade;
so I take profits on trades that hit the upper Bollinger Band,
a horizontal resistance area, or are moving up on declining
volume. I would rather take profits on those types of positions
and then put them to work in another stock that is just
breaking out and starting its move.
The market price pattern is positive, it is moving up between
the ascending trend line noted above, which acts as support;
and the upper Bollinger Band, which acts as resistance.
The volume pattern turned positive, since we have now seen
three above average accumulation days in the last ten sessions.
As long as the market remains above this ascending trend line
I will be trading longs and avoiding short positions. When
the market becomes extended above the upper Bollinger Band
I will hold off on new long positions, because significant
extensions above the upper band usually do not last long,
and are typically resolved with a sideways movement or
retracement of the market. No move lasts forever, at some
point this ascending trend line will be broken. If the market
breaks below the ascending trend line, I will stop taking new
long trades and take profits on at least some of any remaining
long positions. A break below the ascending trend line noes
not necessarily imply the beginning of a bearish environment.
Trend line breaks imply that conditions are changing, and
there are three options for the markets next move. The
market may change to a trading range environment, a bearish
environment, or the break may just signal a simple retracement.
If the ascending trend line is broken, the volume pattern at
the time will provide clues on what is next. More on that if,
and when, it happens.
Shorts are not attractive while the market is trading above
the ascending trend line. If the market breaks below the
ascending trend line on light volume I will hold off on trading
shorts unless the market shows follow through or strong
distribution. On a strong volume break of the ascending trend
line I would look at a couple of good volume short triggers.
This is not a time to be aggressively going after shorts since
the intermediate term trend is still positive.
In summary, the markets price pattern is positive, and the
volume pattern just turned from mixed to positive. My focus
for swing trades remains on longs, while the market is above
the ascending trend line. The best time to pick up new trades
is during retests and bounces from this trend line. The least
favorable time to add new positions is when the market is above
the upper Bollinger Band. When the market breaks below this
ascending trend line, or starts to show distribution, I will
be taking profits on most open longs. Short positions are not
attractive while the market is above the ascending trend line.
I am maintaining the watch list of short setups, but will not
be taking short positions.
Steve Palmquist a full time trader who invests his own money
in the market every day. He has shared trading techniques and
systems at seminars across the country; presented at the Traders
Expo, and published articles in Stocks & Commodities, Traders-
Journal, The Opening Bell, and Working Money. Steve is the author of,
in which he shares backtesting research on popular candlestick
patterns and shows what actually works, and what does not. Steve
is the publisher of the, ‘Timely Trades Letter’ in which he shares
his market analysis and specific trading setups for stocks and ETFs.
To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com
provides additional trading information and market adaptive trading
techniques.
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