Trading in an Up-Trend Day (by Leaf_West)

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Hi Slopers … as many of you know my blog site is in many ways more an educational site that attempts to help less experienced traders/investors to learn how become better "fisherman" rather than a spot that just talks about the latest stock tip.

To that extent I often receive requests from readers asking about an issue that people are having trouble with.  That happened a fair bit after the market on Friday and on Saturday morning.  The issues that people were having trouble with is how to get involved with stocks to the long side on an Up Trend Day.  I have posted pretty extensive Trend Day trading guides in the past but I haven't done one in awhile so I wrote a post on Saturday afternoon.

The post looks at the trading in WYNN from reviewing the set-up on Thursday evening to the intra-day opportunities from Friday … what I really wanted to highlight for readers was how traders can still get involved on a good risk/reward basis with a strong trending stock even if you weren't there from the market open.

Anyways, I am giving this preamble so that people NOT interested in looking at intra-day trading in Up Trend Days, can avoid trying to read the attached long blog posting.

I hope everyone has a great 4th of July!!



I mentioned in my post yesterday about Trend Day Trading and that generated a lot of e-mails from people.  It seems that some readers of this blog hate Trend Days as they feel like they can never find a spot to get long a stock without the feeling that they are bound to "top-tick" the stock and wind up losing on the trade.

I thought I would show an example of the things to look for when you find yourself in a day like Friday.  I'm going to use Wynn Resorts as my example … I'm going to start talking about the chart set up coming into today but I want to stress to readers that the post 10am analysis is the real lesson of this blog.

Many traders were probably not in the mood to chase longs first thing Friday morning (that would be me) as the market was up strongly the previous four days and we were going into a long weekend.  Friday afternoons going into a long weekend are usually dreadful as PM's bail for their helicopter rides to the Hamptons.

What I'm trying to say is that it is perfectly understandable if you were caught on the sidelines (for the most part) when the 10am ISM data set the market on fire.  What you need to be able to do when this type of situation occurs is the ability to trade confidently in good set-ups.  Also important is the ability to know when the odds of making any more money long start to become diminished.  That is the real lesson that I hope you take away from this blog posting.

Let's start …

WYNN_July 1, 2011_01
If you did your homework on Thursday night you may have looked at the above 15-min chart of WYNN (I didn't!!).  Hopefully if it did you may have dug a little deeper since the chart looks like that of a nice uptrending stock, which has just pulled back into an obvious support area (20 EMA orange line).

Price actually broke the down trend line that I like to utilize for triggering myself long after a stock pulls back.  However, instead of heading higher into the close yesterday, price consolidated sideways.  From the 15-minute chart, a trader may be a little concerned that price was going to push lower into the 50EMA in a larger two-legged correction off of the highs.

That scenario is totally possible especially since the last pull-back also pushed into the 50EMA before it found support.  Hopefully, you would have taken a look at a tighter time frame to see what was happening …

WYNN_July 1, 2011_02
As readers of this blog are aware, technical analysis is not black and white.  Techincal-based traders always are faced with a tough decision as to when is a reversal "real" and therefore a good risk/reward.  In real time, technical traders of WYNN look at the above chart and have to decide to I buy support here at the double bottom??

Good experienced techincal traders increase their winning percentages by waiting until the weight of evidence supports a trade.  As I mentioned, when looking at a reversal trade, the first thing techincal traders like to see is a divergence in the internals for a stock, next a trend line break, and then a successful retest of the reversal low.  That is often enough to get me to establish a position.  To me that is the bare minimum for traders willing to trade a reversal set-up … any less evidence and I think over time, people will lose too much money.

If I had seen this set-up in real-time at the end of Thursday I most likely would not have been satisfied with just the evidence to date … going against a possible set-up here was the short-term "over-bought" nature of the market, and the look of the 15-min chart (the previous test of the 50EMA).

To me it would make sense to wait until the next trading day (Friday) to see if/when price could push above the previous swing high ($144.31) … that would in my eyes provide enough evidence of a reversal.

Ok, so let's look at the early Friday morning action on WYNN … again if I was on top of this stock from Thursday evening, I would be waiting to see what happened when/if price pushed above the $144.31 level.  I would like to see "acceptance" of that price and then look for a trigger to get long.  That would be my plan for first thing Friday.  I typically have a plan for 1 or 2 stocks … "if this happens, I will do this …".  I find that has been the best way to trade confidently in that pivotal first 1/2 hour of trading.

WYNN_July 1, 2011_03
WYNN opened up Friday at $144.52, up almost $1.00 from Thursday's close.  So price broke the prior swing high level and if we were focused on WYNN at the open, we would now be watching to see if we could get a good set-up to enter long.

Traders could blindly buy at the break of the $144.31, but at a minimum, you are likely to have to withstand a lot of heat in holding your trade and in a worst case scenario you could wind up getting stopped out of your trade as price fluctuates in those first  few volatile minutes of  the trading day.

Your best bet if you are attempting to get long is to let the initial buying frenzy to burn itself out and buy the pull-back if it appears to be a good set-up.  If you did wait, by 9:45am, price pushed into the HOD level from Thursday and then began pulling back … how did the evidence look?

To me the evidence was conclusive … get long WYNN here this morning.  The trigger was the break of the down trend line drawn on top of the pull-back candles or if you wanted to be really conservative, you could wait for the break of the horizontal price resistance (HOD from today) at $145.93.

WYNN_July 1, 2011_04
The above 3-minute chart shows how you should now have been long WYNN … most traders were probably not lucky enough to have done the work Thursday night on WYNN and therefore sitting on the sidelines wondering what to do after the 10am ISM news hit (cough cough ME!!).

Now I was able to jump on the SPY and trade that pretty well the rest of the day but the example for this post is WYNN so I will continue showing what traders coming late to the WYNN story could/should have done.  I want to emphasize that traders can always get involved in a trade, especially one that is trending higher/lower at points other than the trend kick-off.  The key is to do a quick analysis of the Trend's potential, and then if warranted, try and find a spot to get triggered into the trade.

So, the charts that follow now will be done from the perspective of a trader coming to look at WYNN after the 10am ISM kick-off … here we go!

WYNN_July 1, 2011_05
A quick analysis of WYNN tells us that this "blast-off" has the necessary fuel (i.e., set-up) that should allow it to continue higher.  Looking at the above 3-minute chart would/should get us geared up to look for a pull-back to get long.  An more aggressive trader may be willing to jump in here with a small starter position at this point but my preference is to stick to my p's and q's … try to stick to what you do best as a trader.  For me that is waiting for set-ups so I can avoid to the greatest extent possible, facing heat in the initial starting time of a trade.

WYNN_July 1, 2011_06
So from the above 3-minute chart, we would have been triggered long WYNN at about $147.50 … the low of this pull-back was $147.12, so a stop just under the $147.00 round number was probably the best spot (say $146.89).  So on this trade you are risking $0.61/share and if price only was able to get to the previous HOD ($148.30) your minimum reward would be $0.80.  This is a pretty good trade especially with the evidence that you are more likely going to get to your HOD min target versus getting stopped out.

WYNN_July 1, 2011_07
So again, in a strong trending stock, traders should hold a core position until there is enough evidence of a reversal. Only then should you sell this core position.  I can't emphasize this point enough!!  Traders are always complaining about not holding on to their winners long enough … we all do/say that.  The key is to hold a core and trade a "trading position" … sell this position at sell signals after a new HOD has been established, and then rebuying this position on the successful pull-back.

Since getting long WYNN at $147.50, traders felt no heat at all … it wasn't until we made a new HOD that price finally made a "negative" candle.  the 11:24am candle was a shooting star with a large upper leg.  The 3/10 momentum indicator showed us that price was losing some strength so traders should have peeled-off their trading portion of their WYNN position here.  The R2 pivot price was here as well ($148.72) so traders had that level to watch.  Assume that we were able to sell the trading position at $148.65 for a profit of $1.15 per share.

So traders are holding a core on the WYNN trade and are waiting for a trigger to add to their position.  The down trend line for the pull-back was broken and triggered traders long at $148.40.

Price is starting to show signs of waning strength here though … the pull-back respected the 20EMA here but the momentum indicator was making a lower high and the retracement was 50% compared to the previous 25% and 38.2% pull-backs.  AGAIN, this "weakening evidence" should not keep traders from trying/holding WYNN long here.  If traders are that "scared" of weakening internals, they are seriously going to short change themselves in terms of potential trading profits.

WYNN_July 1, 2011_08
So we add-on to WYNN at $148.40 and price makes a new HOD as we expected/hoped.  Again we had no heat at all as price put in 6 nice consecutive white bullish candles.  The 12:12pm candle was out first sign of another short-term top and out sign to take-off our trading position say at $149.30ish for a nice $0.90/share profit per share.

Again … hold you core holding here guys.  Why should you sell it yet?  Have you seen enough evidence of a reversal yet?  We haven't even seen a trend line break yet … all we have seen is a divergence in momentum.  Level 9 Ninja traders hold our core holdings here and wait to reload the trading position on a good signal/trigger.

So price pulled-back to the 61.8% retracement level … this is a perfectly acceptable pull-back level in a healthy trend so that alone should not concern traders.  However, the evidence is starting to mount that a possible reversal is in the offing.

What have we seen here so far that points to a possible reversal/top …

  • trend line support is broken;
  • the pull-back level has gone from 25% to 38.2%, to 50% and finally here at just over 61.8%;
  • the current pull-back moved underneath the previous HOD level of $148.94.  The low of the pull-back was $148.69 which was right at the R2 level of $148.72;
  • If you looked at the volume indicator, you would see that there are less and less buying/selling going on at these new higher levels.

So with the mounting evidence shown up until this point, I would suggest that traders reduce the size of their add-on and be prepared to sell both their trading holdings and their core holdings if price fails to make a new HOD on the next push higher.  More conservative traders may elect to not add on to their position and just wish to monitor their core holding during this next push higher.

For those willing traders, the Add-On was triggered at $149.00 …

WYNN_July 1, 2011_09
So again, after triggering the Add-On position, WYNN probably surprised nervous holders by pushing to another new HOD.  There was little/no heat again on this trade higher before reaching the 1:36/39pm candles … these were shooting star like and if holding a trading position, traders should be willing to sell here at say $150.20 for another nice quick profit of $1.20 per share.

Again, the evidence is mounting that this trade is running out of steam … to me that momentum indicator is warning that this next pull-back is going to be the biggest yet.  At a minimum, Ninja Level 9 traders should be happy to take off a portion of their core holdings here (in addition to the trading position).  If I was in this trade I would be quite happy to peel off the entire thing.

To each his/her own …

WYNN_July 1, 2011_10
For those traders still in this trade and willing to try another Add-On position, you would have been triggered long at $149.50.  Again, the evidence I believe is pointing to lower and lower return on these trades so I would not recommend this for anyone other than aggressive accounts.

WYNN_July 1, 2011_11
So the above 3-min chart showed the remainder of the trading day on Friday … price really just consolidated for the rest of the afternoon, never getting back above the $149.92 pivot high from 1:57pm.

So even aggressive traders probably bailed on this day-trade some time going into the close.

What would the conservative trader have earned on WYNN today even if he was late in getting to this trade first thing this morning … well he/she would/could have earned $2.70/share ($150.20 – $147.50) on their core holding and profits of $1.15, $0.90, and $1.20/share for their trading position.  Even fairly small accounts holding say a 300 share core and 200 share trading position would have done fairly well on what most traders thought was going to be an uneventful day … total profits from WYNN alone EVEN AFTER the huge 10am spike would have been $810 on the core and $650 on the trading position for a total of $1460.

So this lesson is for all you traders stuck on the sidelines after the 10am spike … it is never too late to make good risk/reward trades if you follow your trading rules/skills.

Tomorrow I will make another post on WYNN in terms of the outlook for a trade going into next week … this post is already too long!!

Talk to you all tomorrow.

Cheers … Leaf_West