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 October
24, 2004 Commentary (weekend edition)-
Today I'm
going to look at that QLGC play that I wanted to cover in the last commentary,
but was pre-empted by the necessity of updating the gold play. I'm going to
cover a few things briefly before we get started, though.
First off,
Trade Management is coming
along well, and I think I will meet my optimistic goal of dropping it off at
the printer on Wednesday. I guess unless one works on a book like this, and
puts out such an effort to try to help other people out, it is hard to
understand the excitement that I am feeling about this book. It was such a
tough book to write, and it is so much better than I expected, I'm really just
thrilled with it.
I'm also ecstatic to be done now with my book 'series', and close
to being back to a more 'normal' lifestyle for me. With this book I will have
laid out just about my entire methodology for other traders to benefit from.
That was not my intention at all when I started this project, to lay out the
entire methodology. I am going to save a more detailed story on the
topic of how this whole project got so 'out of hand' for me for a future
commentary, perhaps in the next week or so. It is interesting enough that I
want to write it up.
Let's look at some of the plays I have been discussing.
Gold is just hanging around the groupings, looking like it is ready to bust out
to the upside. My play is on the long side now, with some already taken off and
the stop moved up. This is the position I like to be in, and now I wait and
watch, and manage accordingly.
GOOG is another story. I came up with
something on this one that was quite interesting, but there was no one to tell
it to. I had used up the mid-week commentary for gold, so I had to keep this
one to myself. There isn't all that much to show on the charts for what I came
up with on this one, so I decided to just verbally explain it.
GOOG finally
came back and hit all my trailing stops with the last pullback. I was fine with
that, as it has been an insane run. But I also noticed a few things lining up.
GOOG has been doing a variation of A Pattern Trade Entry Technique
on the pullbacks it has been doing, giving me a very clean and clear re-entry
trigger. It did this again on Thursday morning, but I was watching for it
midway through Wednesday.
For those readers that have the article, pull up a
15-minute chart and study the pullbacks, and see if you can figure out what I'm
looking at. Now, with the run so extended, I normally wouldn't be looking to
get back in long, at least not aggressively. But there was another factor. I
was getting signaled to get back long right before the earnings were going to
be announced. Generally I close out any position I have before the earnings are
announced, as I like to trade technically, and not by 'coin flip'. Even if the
GOOG trailing stop had not signaled me out, I would not be holding over
earnings.
Then I got an idea. In the 'old days' I traded mostly options, and
I still like them. I looked over the possibility of taking a small
'speculative' option play on this entry trigger. My thinking was a few slightly
out of the money calls, front month. I checked them out, and they were fairly
pricey i.e. they were inflating them a bit, but it was still a doable
proposition. I also had the option to try to play a spread of some kind, which
was my 'specialty' in the 'old days'.
With the run I had behind me in GOOG, I felt
a small speculative play here was justified. I fully expected that if GOOG got
hit the options would go to zero. This was an all or nothing play, with no stop
out. I had some reasoning behind this, besides what the chart was saying to me.
I felt that GOOG was going to go up no matter what the earnings did.
If they were
good, the attitude would be they expected a disappointment and didn't get one,
so let's go. And if they were bad, they would say they weren't as bad as we
expected (no matter how bad they were), and it's go time. That was what I
sensed from 'the crowd'. Given that, I came up with the plan I did. Now, I am
telling this story all after the fact, and I wish I had told it Wednesday when
I had it laid out, waiting for the trigger, but I didn't.
The only
thing I can say is that those that know me well and read my commentary
regularly know that if GOOG got hammered after earnings I would still be
telling this same story in here. It would have lessons for the reader either
way. And if GOOG got hammered, I wouldn't change a thing about the plan I came
up with. Some plays just don't pan out, and that's part of trading.
Well, GOOG went nuts, far more than
I expected, and the play was something else. I thought it might benefit the
readers to see how my read changed my play from holding long stocks to a small
'speculative' play with predefined, limited downside.
Let's move on
to the QLGC play. I spotted a setup on the daily chart, right out of Kane
Trading on: Advanced Fibonacci Trading Concepts and Kane Trading on: Trading ABCD
Patterns. Let's take a look at that.
QLGC formed a nice looking ABCD pattern,
right at my favorite area, as outlined in AFTC. Let's drop down to a
60-minute potential entry timeframe chart and look at the price action.
QLGC reversed right off the grouping, giving
me several very clear entry triggers. The trigger that I was watching signaled
me at just a fraction over 28. QLGC then drifted up for the rest of the day,
and then…
QLGC came out of the gate strong, and put me
back in my favored position of strength. This is what I am looking for, and I
go into very great detail in Trade
Management about how I take advantage of this type of thing, and how I
manage the entire trade from here. Let's see what happened from this
point.
QLGC kept on running, and then sold off quite
strongly. Keep in mind, though, that this is the entry timeframe, and it is a
full 6.5 times lower than the daily traded timeframe. I don't want to
'micro-manage' too much down here. I have my plan in place, and I'm going to
follow it. Again, the scaling out process is started, and the stop is moved up.
Perhaps QLGC is done here. If so, my plan is ready for that. And maybe it's
another GOOG. It doesn't matter; I just follow my plan.
I want to
comment before I close that I have been finding the trading conditions, from
the minis to individual stocks, quite good lately for my 'Trading Plan'. This
week the minis were the best for my trading that I have seen them for a long
time. I was in the chat room here and there and I was making, in real time,
call after call that were playing out for solid winners. When the market
behaves a certain way, my methodology really lets me read it like a cheap
novel, and this was one of those weeks. I hope it stays that way.
The next
commentary will be the mid-week edition, posted by Wednesday evening.
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