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  1. This Weeks Watch list is packed with great setups. So much so that I am going to skip the review video and go over how I trade Flags in the HPS system. This week's video has 3 Best Bets that all come from the same sector..Can you say sector rotation... Well would like to see that this next week and that could also be a safety sector that might find some interest if the market pulls back some soon. But I am not calling for a top and will just see how things look early Monday morning. Markets still will be focused on headline risk. I like the gradual scale in on the SPXU but not very small increments. This next part is a small piece of the HPS methodology section: How I trade Flags. Flags and Pennants: Whats great about flags? Well for one thing they are everywhere and on every time frame. I actually have a technique on the 1 minute chart that is up close to 85% success rate when it appears. This you will find on the futures HPS section. Flags also usually consist of multiple indicators that I use in the HPS. It is a great pattern but just like everything else you need to have converging indicators line up at the same time. Flags and Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume and mark a mid-point of the move. My # 1 Setup when trading a flag is that I want the stochastics to be oversold and at that time the price to be above the 20 ema or 50 ema. This is a guide for me and not a hard set rule. I mostly look for this set up on the daily time frame. In some cases the price will chop around the 20-50 ema so you don’t want to be so exact that you miss some great opportunities. Lots of times you will see the price drop below the 20-50 ema just to see it close back above it by the end of the day. The keys are: 1. Trend is intact, we are pulling back but holding above the previous pivot low. 2. Stochastics making a fast rotation back to oversold levels <20 as the price makes a very organized pullback but hold above the 20-50ema 3. Flags like any pattern have a unique look to them. Basically they are mini channels that should be traded like any other channel (Channel Lesson) “Make sure it looks like a flag” This combination has had high probability of success. In My experience it works over 70% of the time. That would increase depending on other convergences at that time. (Trend Lines, Reversal candles,ect) Flags are continuation patterns and usually show up multiple times in a row, but it is important to identify them early in the trend so you can profit form them. Here are some examples of my Trade-able Flag Setup Lets start with the Daily Time frame: $DNKN Now lets break down how to trade the flag Breaking down the daily time frame into a 60 min time frame shows you a great entry technique called the “Daily 60 Stochastic Combo” which is a multiple time frame trigger when both the 60min stochastics oscillator get oversold at the same time the daily stochastics are oversold. Because the daily is a slow moving time frame the combo doesn’t happen every day but when it does it should be considered. The Next chart is the same flags that we had on the daily now broken down to the 60 min time frame. You can see the channel much more in detail and the much quicker rotation of the stochastics. $DNKN This above technique as with any setup is dependent on market conditions. Flags are great in a trending market but trends can be defined and spotted in any time frame. You can have a trend develop on the 5 min time frame or a 1 min time frame. So understand your time frame and what to expect from it. The 60min daily combination is great for swing trades but also because the 60min is a trigger could be a great scalp also. You can trade the 60 min flag by itself you don’t have to always wait for the combo to setup. I will go over the 60-15-5 combo in the next section. $DNKN Have a great weekend Everyone DayTraderRockStar
  2. Fridays for me are spend going through hundreds of charts and during this research session I try to keep a close eye on the markets and take any trades that might be setting up for next week. Well what a day to be on the other side of the mic! The Nasdaq just got pummeled down over 100 points and the Dow and S&P also put in some negative candles. Going into this morning I thought there was a good chance to sell the news (Jobs Report) and the market did just that. The markets did sell, and did it in a way that leads me to believe we have some more downside. Here are some important keys to today's action. 1. The $SPX (S&P) traded higher then yesterdays highs which is also a new all time high, then closed lower then yesterdays low making the candle a bearish outside (engulfing pattern) 2. The Engulfing pattern happened when we were overbought on the daily..This is the criteria I use for a true reversal I want to have a overbought or oversold reading when the candle is formed. 3. Volume was higher on this then the previous 3 days. 4. The key takeaway here is the crossover on the daily stochastics and the the large area underneath us that can be tested and still keep this market technically sound. On a positive note for Monday we got oversold quickly on the 60 min time frame based on the stochastics oscillator and this has been a very reliable signal for a short term move up. So that's the outlook for early next week, Looking for very short term recovery possibly into Tuesday and then watch how far we get on any bounce and look for that failure that should lead to some further downside. 1800 on the S&P is definitely a possibility down the road. I put out a early watch list during the day and a more focused watch list of some scalps I will be taking early in the week both can be found here. I go back over some key charts in both video's so you might have some duplicate info if time is an issue then watch the second one down on the page. Chart 1 Larger Image View Chart 2 One last note: The hardest thing to do is call a top ..even though this look like a great combination of bearish signals this market has proven the bears wrong time and time again when it comes to calling a correction (7%-10%) DayTraderRockStar
  3. As the markets rip higher and push charts to their limits, traders start to look for the market to collapse under it's own weight. I was seeing a tremendous amount of discussion on when to short the market and even myself have started to act on some high flyers by taking some puts and bearish ETF's. But I have seen this before and it's not a fight I want to be in, The more negative talk of the market needing to come back in or to rest, will just grind this market higher. I said this months ago. Not until people feel like they are missing the boat, or even better, my sister getting back into the markets, will this market sustain a correction more than a few weeks. It's only been 5 years since the last financial meltdown, and that scarred a lot of people who had trusted the economy and the markets. Now, they see the Teflon market brush off debt issues, a divided government, unemployment, and anything else they can come up with. Maybe a new crisis? Nope. Been there with the situation with Syria and Russia. Earnings? Nope. Sorry. I know the Hindenburg Omen. Don't get me going on that one. This market might go down when WLT gets bought out, but pigs will fly then too and that we all know is bullish. I don't make guesses in the market based on opinions. Everyone will tell you something's wrong but unless you put blinders on, you might miss the next big market move. I think I will get bulldozed in my puts but they are a good hedge at this point in the market. All I want to do is profit when the markets move up or down and we have. The last month was near perfect each trade a quality High Probability Set-up. For a special post, I decided to share what I will be looking for, in detail, when it comes to an opportunity to short this market. I probably will not initiate any new shorts until i see a clear reversal in the markets. For me, I focus on adding the reversal candles to the HPS core indicators, as we are extended and technically overbought and up against my target trend line 1745. I want to look for that reversal candle to show up. This could be in the indexes or individual stocks. Below is something you will see in a educational course I am writing for the HPS. This is a rough draft of a small section but felt it is important for the up coming week's The candle is comprised of two components; the body and the wick (sometimes referred to as “shadow”). The body shows the open and closing prices and the wick shows the high and low points throughout the trading period. The image below gives a basic understanding of what a candlestick looks like and how it works. Over time, as the HPS methodology was developed, I was able to add important indicators to the formula to increase the probability of the success for the trade and continue to see the results that would unequivocally prove that this was the most successful method of trading in today's market. I would be fine with just keeping things as simple as they are, but over 19 years of trading I have noticed one more consistent signal that the markets produces that alone would be enough to trade on. When added to the HPS method and the underlying 5 studies (indicators) give us a tremendous entry for any trade long or short. To emphasize how good I know this is, if I was asked “John, do you think there is a "Holy Grail" in trading?" (I of course know there is no such thing) would answer by saying, "The HPS indicators are like baseball players. You are not going to hit a home run every time, but if you go back through history and took all the greats and put them on one team, that would be the HPS. Adding these 5 reversal candles to the formula it really ties everything together." These reversal candles are, in a sense, the 6th indicator to be considered when they appear with any of the core indicators. And the rules apply still that we need 3 or more core indicators converging to be considered a HPS. Personally, I would probably trade 2 cores and a reversal candle stick. 3 or 4 cores indicators and a reversal well that's as close as you will be to the Holy Grail. Lets take a look at those candlesticks. To be considered a reversal, there should be an existing trend to reverse. It does not have to be a major trend, but should be up for the short term or at least over the last few days. A dark cloud cover after a sharp decline or near new lows is unlikely to be a valid bearish reversal pattern. Bearish reversal patterns within a downtrend would simply confirm existing selling pressure and same for Bullish reversal patterns if we were to see a Piercing Pattern in an uptrend it really is just a continuation of the trend. HAMMERS: Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer. DTRS TIP: This is my favorite reversal. Knowing that the HPS method we are already looking at quality names and usually in a pull back that has extended far enough to signal oversold levels on the stochastics and most likely pulling back to a lower area of interest defined by a channel or support area. The hammer tends to test those limits and violate them taking out the remaining weak hands , stops etc. Then reverses and close on or near its highs and usually above the areal or support. This is a great set up and the hammer really confirms the entry zone. SHOOTING STAR: A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish. Same applies as the Hammer just opposite. ENGULFING PATTERN: A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body. DTRS TIP: Another great candle to look for, Because it is not very common it is one of the candles technicians pick up on. Even though this is a great candlestick I would only trade it in concurrence with 2 or more core indicators lining up. DTRS TIP: When actively searching and scanning for HPS candidates, and I find a potential stock that is lining up properly, I will focus in on it. If I see a gap down (in the case of a long), and watch the action early on, (because it has multiple indicators lining up) I will look to start a position before the end of the day if we start trading above the previous days close . As I expect it to finish off with a strong candle. I can get a great position and very low risk entry. PIERCING PATTERN: A bullish two day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day. DARK CLOUD COVER: A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day. The opposite of the Piercing Pattern. Here is a great example of the combination of oversold stochastics, and reversal candles. You probably could put in an underlying trend line on this chart too. We will leave off for here now. There are hundreds of Candlestick patterns but these are the key reversals and when they line up with the HPS indicators they are the best risk vs reward set ups out there. In the next segment, I will show you how to use volume and one of the best key volume signals to trade off of. DayTraderRockStar Remember, don't trade over your means and nothing is guaranteed. News trumps all patterns. Meaning outside influences like bad or good news will break chart patterns but there is a great strategies to profit from that, but that's for another post
  4. For the next 12 days leading up to Christmas I will outline and post Pure HPS (High Probability Setups) one being released each day. The buy Triggers Profits and stops will be outlined. I will also be taking most if not all of the trades either as a scalp or overnight swing. So Starting tonight it really was a toss up between NEM and VZ. NEM I had more or a gut feeling for but technically there is not much to be bullish about. The VZ on the other hand has multiple positives that are converging all in this price zone. I feel any weakness tomorrow will be the best opportunity in VZ. I am really warming up to the gold trade and NEM will give a clear sign if it hold today's lows, It has pull back hard, but recovered a lot of that. So much as to watch for some follow through tomorrow. VZ long is the First Trade of Christmas NEM (Newmont Mining Corp) The Second in a series of 12 stocks leading up to Christmas. These are pure HPS set ups and I will personally take each set up when and if it triggers. Remember this is a buy on a break above 23.50 You could also substitute the GLD etf as they should move together (GLD a little stronger)
  5. The highlight for me this week was to find a pure stochastic divergence or what I call a Lane Divergence. George Lane was a technical analyst in the 50's and 60's that developed the Stochastic Oscillator. A momentum indicator that measures the momentum of a move so traders can get a idea when the market or security was getting ready to turn around. Lane was quoted about his stochastic indicator by saying "Stochastics measure the momentum of price. If you visualize a rocket going up into the air, before it can turn down, it must slow down. Momentum always changes direction before price." (and that's a fact). Stochastics work on every time-frame and every trading vehicle. Futures,Stocks, etc. Just the simple understanding of momentum and the example of the rocket. You can see how stochastics can give you that added edge to finding a good entry point. I use stochastics as the foundation to the High Probability Setups (HPS) method. By combining basic trends, support, patterns and the stochastics, you really do find the Highest Probability area where a stock will turn. This week we saw a text book Lane divergence on the 60 min time frame. And a pure divergence is not just an oversold or overbought stochastic reading it is a confirmation or a change of momentum before the price changes. Because stochastics can get embedded, (meaning pinned in an extreme level usually above 80-90 or below 20-10) they are susceptible to false readings. When you add the 4 other indicators to the equation, you lower that risk a lot, but it is still there. The key with the stochastics is looking for a pure divergence when the stochastics make a higher low but the stock price makes a lower low. This shows the momentum slowing and shifting like a rocket that is peaking, so the price follows suit. Here are some examples and the last one will be the example that happened this week and predicted the move higher today. (Some might say it was the jobs report) The fact is the divergence was there and it is not a common thing so when you find it you better watch it. Basic Concept Examples Example 2 Example of both bearish and bullish divergence (Print this chart to remember both) This weeks Chart Chart Larger Image View
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