CSCO Shows a Dummy Spot Daytrade and a Swing Entry (14 Aug 2006)
Today CSCO showed up as a nice Dummy Spot example, and also potentially triggered a swing trade (if you’re a swinger). Read on…
Oh, and P.S. Who could have known that we should have been watching CSCO?
I’m going to include some quotes from my “What Are Dummy Spots?” article written last January. The most recent example I had at the time was GM from the day before. I’m using this juxtaposition (ha! I knew back in high school I’d use that word at least once more in this lifetime!) to show that the players may be different, but the song remains the same…
First, the chart:
(Quotes are from January post on GM intraday Dummy Spots):
>>The overall market was rising.
This morning, the overall market was rising.
>>GM had gapped up on the open by 15 cents (gaps are good, they attract attention), and had wandered sideways/down on fizzling volume.
This morning, CSCO had gapped up on the open by 25 cents (gaps are good, they attract attention), and had wandered sideways/down on fizzling volume.
>>The range on the 10:20 EST “inside bar” was from a low of 20.27 to a high of 20.32, just 5 cents.
This morning, CSCO’s range on the 10:20 EST “inside bar” was from a low of 19.83 to a high of 19.89, just 6 cents.
>>The 10:40 bar broke the high of the 10:30 dummy spot, triggering a trade. Entry would have been just above the high of the 10:30 bar at 20.32, with a stop at the low of the same bar, or 20.24.
This morning, the 10:30 CSCO bar broke the high of the 10:20 dummy spot, triggering a trade. Entry would have been just above the high of the 10:20 bar at 19.89, with a stop at the low of the same bar, or 19.83.
>>This entry provides a total potential loss of 8 cents. On a 1000-share trade, that would be a total risk of only $80.
This morning’s entry provides a total potential loss of 6 cents (8 cents if you give a penny on each end). On a 1000-share trade, that would be a total risk of only $80.
***
The GM example in January would have netted at least $680 from that $80 risk, or “6R” if “R’s” are what blows your skirt up.
Today’s CSCO trade, with an exit at 20.13, would have netted $240 from that $80 risk, or “3R.” Not exactly enough to make the fair maidens swoon, but quite a sweet trade “on a whale.”
What about that swing entry?
This morning’s break of the “big day” (09 August) high of 19.95 provided a nice place to enter a long swing trade. Today’s volume being significantly above average is a positive, as well.
However, (and there always seems to be a damned however, eh?) the overall market is looking pretty anemic on a daily-bar (i.e. swing trade) time frame, and this is August, after all. Trading in August is usually about as entertaining as watching paint dry, because it seems the entire world is either on vacation (THEY) or at work (WE).
If I had entered a swing position (I did not), I’d have myself a nice tight stop right up under today’s bar, at 19.76. That’s a 19 cent maximum loss, or risk, or “R” (19.95 entry minus 19.76 initial stop). As my position size is always based on risk, I’d buy 100 shares for every $19 I was comfortable losing. Also, I’d take what I considered a “normal” position (say $150 risk or about 750 shares), and reduce it by 20 or 30 percent, just because of the however mentioned above. There’s no system to that. That’s pure O’Malley, baby.
Gav said,
August 16, 2006 @ 4:24 am
That was a nice dummy setup. btw, how do you determine the trend? since dummy spot is an entry point to join the established trend. I didn’t see any line or moving average shown in your chat. Care to share?
Will said,
August 16, 2006 @ 8:33 am
Gav,
This is what I consider one of the old “bread and butter” setups, like the GM example I referenced. If the market opens strongly, I’ll scroll through a list of stocks which gapped up, and follow them on 5-15 minute bars (the later in the day, the longer an interval I use). If they rise or move sideways without retracing into the gap, I consider the “prevailing trend” (for the morning at least) to be “up,” and look for an opportunity to go long.
As the day evolves, the intraday bars (particularly if I get all the way down to 15’s) will show a clear trend, but that’s often in hindsight, after most of the move is over. I mainly watch higher lows for upswings and lower highs for downswings. I suppose I could draw lines on the intraday charts, but for me it’s just easier to follow the lows up and the highs down.
When I’m looking to go long, the best setup is sideways or a slight pullback (lower highs, lower lows) on withering volume. A Dummy Spot often signals the end of such a pullback, and I enter on the break of its top (next bar).
On the CSCO example in this post, I see the bars as: 0940- higher low (primary “up” trend), 0950- higher low (ditto), 1000- lower high (pullback), 1010- lower high (pullback), 1020- inside bar (Dummy Spot), 1030- break of Dummy Spot, entry point into primary trend.
Now I must insert here that I have so many red flags for these trades that 9/10 or more of the stocks I start the day watching are eliminated within 20-45 minutes. I tolerate no wishy-washy at all, because a perfect entry only puts you at a slight advantage, and anything less is a variation of “buy and hope.”
As for the technical indicators, I don’t even use moving averages anymore (intraday). I’m strictly watching the bars and the volume evolve, looking for smooth swings and pullbacks, killing off the stocks that don’t play nice, and hopefully ending up with one or two which behave perfectly and show me an opening for an entry.
Swing trades (I define these as trades I take off of daily bars) are a different story, but this comment has almost turned into a post with all my hot air, so I’ll stop for now.
Thanks for the dialog.