Trade Ideas Blog

Morning Prep and Trades Show How I Got Ready Today

May 12, 2009

I get ready for the day, trying to figure out a market theme that will bias my trading direction for the session and thanks to Twitter/StockTwits, I get an insightful nugget from Brian Shannon of Alphatrends:

“When 200 DMAs are DECLINING, rallies typically DO NOT hold, especially when they are advertised so strongly in media, keep guard up.”
9:20 AM EST
Rummaging through my list of short strategies, I choose one I recently created for an upcoming Technical Analysis of Stocks & Commodities issue – we appear in the magazine’s monthly Traders Tips section.
“Modified ATR Volatility Stop Part 2”
Click on the above link and goto ‘Configure’ to see how this strategy looks to short large spikes in price (of at least $0.75 in under a minute).
That’s the strategy, but what about the trading rules?  How should the opportunities that the strategy finds be traded?  
For the stop loss we used one of the more advanced options available in the OddsMaker.  Instead of using a traditional stop loss we selected ‘Another Alert’ as the exit condition called ‘Trailing stop, volatility down’.  This alert is triggered when a stock moves down an amount equal to the average 15 minute volatility multiplied by the number of 15 minute bars we decide – in this case 2.  For example if the average 15 minute volatility is 10 cents, this alert would not trigger until a stock moves down at least 20 cents.
Here is what The OddsMaker tested for given the following trade rules:
  • On each alert, sell short the symbol (price moves down to be a successful trade)
  • Schedule an exit for the stocks 30 minutes after entry
  • Start trading from the open and stop trading 30 minutes later
  • Set a stop using the alert, ‘Trailing stop, volatility down’, with a setting of 2 bars
I have a few other strategies also up and ready to trade, but I’ll watch what comes through here and short the large spikes in price I see from this set-up.
9:30 AM EST
Here we go.
Taking THG at $33.74 at 9:34AM EST.  Out at $33.45 at 10:11AM EST +0.29
Taking TRH at $$40.41 at 9:42AM EST. Out at $40.46 at 10:12 AM EST -.05
Not thrilling, but living to see another day.