Well, I understated.
The actual profit would be about 15% in 4 trading days in the Short trade illustrated below. And the Long trade generated about 30% profit in 7 trading days. Both trades using Rubber Band Like Stretch and Release of that Stretch.
We may say, 10 score out of 10 in each of the trades in terms of Entry Timing. And equally high score in terms of Disciplined Profit Booking.
Once we have a robust trading system (I use CUE Global on Metastock) and follow Superior Profit disciplined Way, we usually end up with profit. As these two trades show.
Let us first look at what is Rubber Band Like Stretch and Stretch Release?
When a stock moves considerably up or down, it goes to a Stretched state - somewhat like a rubber band. And it usually needs to pause and take a breath before continuing in prevailing direction. When it pauses, traders would like to book some profit and that moves the price in reverse direction. When this reverse direction move starts, the rubber band Stretch is Released. We say that the Stretch is Released.
This Stretch Release shows up as Up or Down Arrow in CUE Charts. This is a highly responsive signal. Meaning, it responds fast to rubber band tension change.
How to use it? If a trader is looking for Reversal Swing Trade to catch the local Top or Bottom, it may be done using Stretch Release. It could be used for Swing Trade as well as for Day Trade. Below real life trade taken in recent weeks examples illustrate the use of Stretch Signal in Swing Trades.
Note that Stretch Release is a "fast" signal. A trade entered based on only a fast signal is prone to whipsaw and stop out. That is why Superior Profit Way suggests to combine Stretch Release with additional confirming signals' before taking a Stretch Release Reversal Trade.
What could be additional confirmation signals?
It could be Heavy Activity at or just prior to Stretch Release. That typically indicates exhaustion and need for the stock to pause.
Another confirmation signal could be price hitting support or resistance level. Such support / resistance could be in the form of CUE Memory Line, Double Top/Bottom or the Longer Term Direction Lines.
CUE Headwind signal could be yet another confirmation signal: Headwind indicating that up or down momentum is slowing down.
You may read more about Stretch Release, Headwind and other CUE signals and trading way in the Education Center Books.
Now let us go through an actual Stretch Release trade that was announced in Superior Profit Traders Community as the trade signals were generated.
On 24th May 2016 we had alerted about Chesapeake Energy (CHK) in our Traders Community. You may access that post here.
Below CUE Chart of CHK explains how the trade was initiated on 14th May'16 - the day when CHK went up by more than 10%. (this image is taken from the above mentioned Community post and annotated to explain the entry signals in detail).
Following standard Superior Profit guideline, one would not take a Long trade when Weekly Backdrop is Bearish; as was in this case. So, this entry would be considered an improvised trade. And probably it was taken on the analysis that CHK was at extreme (Pendulum) Low and that price was reversing from Double Bottom with strong strength - indicated by the 10% move up on entry day. Our Superior Profit Trader who posted the trade also looked at some peer groups of CHK on 24th May - using Metastock Xenith/EIKON - coming to conclusion that the industry/sector state may also justify a Long position on CHK.
How did the improvised trade play out? Let us look at CHK as of today, 31st of May (after Market Close) to see the result.
From the narration of points 1 to 3 we can see that the Long Trade using Bullish Stretch Release had resulted in 22% profit in 2 trading days. Assuming partial profit was booked and that remaining position is currently held at 9%+ profit, we may see that net profit as of today is about 15% in 4 trading days from 24th May Entry to today's date of 31st May.
Below is the brokerage snapshot showing entry price of 3.88 and 9%+ profit on remaining CHK position being held by a CUE trader - entry being on 24th May - precisely when the Community post was submitted.
The chart above also illustrates that Stretch Release could be used for Short trades as well. For example, at point 4 where Stretch Release in Bearish direction coincided with a Bearish Headwind and price bouncing down from Very Slow Direction line. That trade would result in profit of about 40% in 7 trading days. If partial profit was booked earlier around 20% profit level, this Short would result in a net profit of about 30% in 7 days.
In this way, following disciplined Superior Profit Trading, a trader could benefit from both Short followed by Long trade. Capturing a significant total of about 30%+15% = 45% profit in few weeks using Stock.
It was pretty good result in my opinion. And both the Long and Short the trades could be taken relatively easily using Stretch Release signal and combining it with other supporting CUE signals.
Does your system allow you to identify and execute trades in such unambiguous and easy way?
Today (26th May) US market did not move much.
At around 11 AM EST I had shared my thought on the Market Internals in a quick Superior Profit Traders Community post. Mentioning that as of that time, Market - though virtually unchanged from the day before - was showing some sign of Bearishness in the Intraday charts and few other places. I had also mentioned that later I will share my reasoning behind that observation in a blog.
Well, here is the blog.
Before I go into the the detail, I want to mention one key work. I had said there was a "hint" of Bearishness. Not a full display of it. A full display of Bearishness would mean Market falling down. It did not. It was mostly unchanged.
Market was mostly unchanged as seen from S&P500. How did I thought of Bearishness then? Would it not be appropriate to say that Market was neutral? That is how it would appear to other traders. But Superior Profit traders don't only keep an eye on S&P500. That is outward health or weakness. They also tend to look at Market Internals from time to time. To see how strong the market really is under the hood.
First, let us look at the E Mini S&P 500 through CUE At A Glance Template (Weekly Backdrop View on the left and Daily Hop On View on the right) - this is as of 27th May early morning (around 1 AM).
As explained in the chart above, Market is going up - as seen by Hop On Daily Chart Traffic Light Candle color being green.
To a CUE Chart trader, Green is Bullish. So we are not going to say it is Bearish. And that would be correct interpretation. And it is also explained that "Bullishness" was not a roaring Bullishness owing to anemic Activity of last few days in the above chart.
Lets delve a bit deeper in market internals now to see what was really going on there.
I had posted a Broad Market Internal study in Superior Profit Blog a few days ago. That showed overall Market Internals showing weakness. You may find that blog here.
[Note that every week we tend to share this valuable Market Internal snapshot in Superior Profit Traders Community - USA Market category. You may access the Community here.]
That blog on Market Internal was analyzing Market health usiing Weekly chart. Today, I look into finer detail of today's Market movement using Intraday chart of Market Internals.
The chart below shows NYSE Internals of today's (26th May) - combining S&P500 E Mini with Tick Chart, Activity, NYSE Advance Decline and NYSE Up Down Volume - all key Market Internal indicators.
Here is what we can gather from this chart:
Point marked (1) : The Tick chart did not show any extreme move upward or downward for the whole day. It was moving sideways. Meaning neither Bulls were heavily buying many stocks at same time. Nor were Bears selling many stocks at same time in NYSE market.
Points marked (2): Market (here we plot @ES - which is E Mini S&P 500 Futures symbol) Opened somewhat higher with larger Activity bars.
Points marked (3): However, price soon came back to Last Day's Close (magenta Pivot line) and then below that by 10:30 AM EST. While Activity was reducing (this is the time when I posted my comment on hint of Bearishness in Traders Community).
Point marked (4): After that, whole day Activity remained muted. As if it was a holiday session and big traders were taking a break. Or, as if, traders were waiting for some key event or announcement to happen (like Fed chair person Janet Yelen's Harvard talk tomorrow 27th May at 1:15 PM EST?).
Point marked (5): Around 2 PM EST Market gave the appearance of a short rally - going back to Open (blue Pivot line). However, as we noted, Activity and Tick was not confirming Bull's strength. Tick was actually showing a Divergence. More on this later.
Point marked (6): Soon after the 3:30 PM EST, S&P 500 came back right to Last Day's Close.
Point marked (7): In terms of number of stocks in NYSE that were Advancing or Declining, we see that at Open more stocks were Advancing. A Bullish sign at Open. However, soon it turned negative around 11 AM EST (the time when I posted my comment on hint of Bearishness in Traders Community).
Point marked (8): And for remaining hours of the day, Advance Decline signal was neutral. Essentially wrapping around the zero line.
Point marked (9): In terms of Up Volume (Volume of all stocks moving up) and Down Volume (Volume of all NYSE stocks moving down), at Open, again, it was Bullish. But reversed to below zero line around 11 AM EST (the time when I posted my comment on hint of Bearishness in Traders Community). For remaining hours of the day, Up Down Volume remained below zero line - Bearish. Though not by much.
Probably you can now see why at around 11 AM EST I came to announce of the "hint" of Bearishness in the Market.
Lastly, let us look at sector/industry wise performance of market (using Dow Jones Index) for today (as of end of day of 26th May).
Clearly, by end of day on 26th May, more industries were in red than in green. A bearish sign. Though not full fledged Bearish - as several industries ended in green as well.
These are all is interesting study from Market Internals. Now, how do we use such Market Internal study in trading? Or can we use it at all?
Remember the Weekly Market Internal Blog mentioned above? Here is the link again for ready reference.
That analysis was using longer term Weekly chart. And Superior Profit traders may use information gleaned from such Weekly studies to assess if and when Market "may be" topping. And that information may be used by CUE Traders to look for potential Short in individual stocks - may be using trend following Go With Flow trade or trend reversing Headwind or Stretch Release trade. You may learn more about those easy tactics in Education Center and also in the many trade ideas posted in Traders Community.
What about the Intraday Real Time Market Internal chart that I shared above?
That is used by more active traders.
By E Mini Futures Day Traders for example. Indeed, the "Market" chart in this Real Time study is that of @ES - and seeing that in conjunction with the Tick Chart, Activity, Advance Decline and Up Down Volume helps an E Mini Day Trader to catch a continuation / breakout as well as reversal trade more confidently.
It may also be used by active Stock Day Traders. If one is thinking of Shorting a Stock as Day Trade, it certainly helps to see that E Mini S&P500 is also showing a Tick Divergence at same time. Yes. The chart shared above does show this very valuable Tick Divergence. One such area is marked by points (10). Where E Mini S&P500 was going up. Whereas Tick was going down. Such Tick Divergence may indicate a reversal point in @ES. As was in this case in the chart. Such Tick Divergence information could be used by E Mini S&P500 Day Traders. As much as it could be used by stock Day Traders. This is because often stocks tend to reverse when S&P500 E Mini reverses in Intraday chart.
I had posted a blog on Oil on 17th Jan naming it Double Edged Sword - that you may read following the link ...
I had assessed Oil using CUE Charts and mused that Oil may start to go up from there.
That blog was posted at a time when all market experts were calling for $20 a barrel for Oil. Which was about 10$ lower than prevailing price at that time.
As it happened, the experts calling for $20 Oil barrel proved to be wrong. And the blog musing proved to be correct. How was it possible? What can explain this?
Firstly, we must acknowledge that it was not a certainty. It was a probability at that time. That became more real as time passed.
To be transparent, I did not have benefit (or curse) of too much knowledge on how Oil was moving around the world in Russia or Middle East. Neither did I have inside information on Oil Inventory and what not. Neither could I claim to have a conversation or two with large Wall Street Oil wheeler dealers. I am not even from Wall Street. I have my root in Main Street all along.
Probably I was saved by NOT having link to the experts - who seem to know that Oil was destined to go to $20 a barrel.
What I did not have in terms of elite or not so elite linkage to Wall Street was probably more than compensated by my willingness to trust own eyes. Not my own bias. But what the CUE Charts were saying. And some background information cobbled together in my mind; however vaguely; from Metastock Xenith/EIKON.
And I was willing and able to post my view confidently as a rational Superior Profit Trader. How did Oil play out since 17th Jan 2016 - when the Double Edged Sword blog was posted?
As we may see from above CUE Backdrop Weekly chart, Oil made a pretty modest 60% run upward since the blog was posted. Several Superior Profit traders had traded Oil during this period - some using ETF (USO). Some using Mutual Funds (!). And some might have used Options or Futures.
The correct entry point would have been sometime in the week ending on 26th Feb - in the chart above this is the week when Oil broke above Memory Resistance. Just the week prior to that CUE had shown a Bullish Headwind. However, that week ended below Memory Resistance and with a Long Upper Tail. Not Bullish enough to try to catch the bottom of Oil. We would patiently wait. And enter Long next week.
Entering a Long position in Oil in that week of 26th Feb would result in a profit of 46% in 3 months by now. Which is about 138% profit on annualized basis. Without using leverage involved in Future or Options. Pretty good result following own CUE/EIKON analysis and ignoring the so called self proclaimed experts who said Oil was heading to $20 a barrel ... Trusting own eyes and doing homework sometimes has its benefits. Won't you say?
Are you part of the Superior Profit Community yet? Are you following the Superior Profit Analysis Blogs at the Facebook page?
Would you not think it might be a good idea? To find a realistic analytical way of investing and trading profitably - on your own. And with the support of the Superior Profit Community?
It is no surprise that like in any discipline, Investing and Trading needs some homework. It does not have to be too complicated or time consuming (Superior Profit Traders use CUE Charts for this homework - and you may find their trades and investment ideas in Traders Community).
Here is an example of a relatively easy and profitable trade as a result of a bit of homework. It also illustrates how one Superior Profit trader took a Day Trade using CUE Fine Tune Intraday charts. And combined some broad market information gleaned from Xenith (EIKON). This particular trade was taken using Weekly Options on QQQ. The same could be taken using QQQ as ETF or the NASDAQ E Mini Futures (@NQ).
Let me explain how the trade was taken (by yours truly ...).
I happen to have a look at @NQ (NASDAQ E Mini Futures) through CUE Fine Tune chart during my Sunday (EST). It seemed to be moving sideways as the above chart showed. That lead me to have a look at Global Markets and this is what I observed.
India Market had opened in green - but slowly it turned red sector by sector ... most sector ending in red by end of day and so did overall India market index (.NSEI).
I then switched to looking at Europe Markets and I saw most of the European Markets (as was for overall Asian Markets as well) were in negative territory.
The above snapshot is as of around midday EST. However, Europe Markets were mostly negative from earlier time too - even from before US Market Opened.
This Bearishness and overall US Market Internal Bearishness that we saw in our earlier analysis; combined with the fact that QQQ.O seemed weakest among QQQ.O, DIA, SPY; I decided to go for a Short Day Trade on QQQ.O using Weekly Options. I used Stretch Release Entry technique of Superior Profit Way as QQQ.O hit Last Day High / Early Range High and reversed from there with a Stretch Release Bearish Signal. Below chart explains the entry.
For this time, I had also put a profit taking order at around 25%. And having in mind that if that target is hit, I would make sure the overall trade remains in profit (by placing a Breakeven or Trailing Stop on remaining position). Why 25% - I saw from brokerage terminal that this was the highest price of the Put Option today (till my Entry time) - which was at Market Open. And I was happy enough to book my partial profit there.
That is Superior Profit Way of Investing Profitably. And it is being mastered by traders as I post this trade. There is detail material on CUE System at Education Center.
And we have started Superior Profit University over this last weekend. Our plan is to take series of classes (for series of batches) - to cover all aspect of investing in this way. You may find the scheduled classes here. These classes are live (not pre recorded sessions) and they don't use slides. We use charts as that is how we trade - using CUE charts and not using slides.
These classes are intended to be detail classes on Trading using CUE System - meant for traders who are using CUE charts - to help sharpen their skill. However, all are welcome to join.
In Superior Profit Way we like to do our homework. It does not take long. Using Sonar (Explorer in Metastock) it takes a Swing trader ten minutes or less usually when he wants to identify a trade.
After we identify potential opportunity, if the time is right (say, following CUE Trading Signals guideline), we take the trade.
Else we wait. And wait. And wait. Until the right time comes - and when it comes, we take the trade without hesitation.
Here area few real life examples from Superior Profit Traders Community trades of last one week on how we were prepared. And profited from that.
It also illustrates several useful characteristics of a successful (a.k.a. profitable) trader:
Let us look at them in action in the real life trades that I took in last few days.
Being Prepared and Patient
Three days ago I had run CUE Explorer to scan for potential Shorts. Within few minutes, I had identified stocks in four different industries that might give a profitable trade and shared it in Superior Profit Traders Community here. In that post I had mentioned that it might be wiser to wait. To see if SPY (broad Market) holds support or breaks it - before taking any of these potential Short trade(s).
In short, I was prepared with my analysis outcome. But was not ready to take the trade. I waited patiently to see when and if a suitable entry opportunity arises.
Let us see how these four stocks played out after the original post in Traders Community.
Yahoo did not yet give any signal to take a Standard Superior Profit Swing trade. This is explained in the chart below.
Procter & Gamble (PG):
PG went up for one day and then gave an optimal entry opportunity using Fine Tune template as explained in two charts below. This shows how the same CUE opportunity could be traded as Day Trade, Two Day Trade as well as Swing Trade.
Some Superior Profit Traders might have traded PG in one of the CUE ways mentioned above. I had not taken PG. However, I had improvised on a QQQ.O trade and benefited from the market drop on 18th May - the same day when PG also started dropping. Here is how.
NASDAQ ETF (QQQ.O)
CUE Charts have several easy to use tools - and once someone is used to them, new trades may be improvised; combining CUE Charts with broader Market facts (not judgement or opinion - we try to stay away from that if we can !)..
You may recall that I had already analyzed the broad market to be Bearish in my Market Internal study blog a few days ago. Based on that and movement of QQQ.O, I could improvise a profitable quick trade using Weekly Options.
I had booked profit on most of the QQQ.O Put Options on entry day itself. At more than 100% profit. And I allowed some lots to carry on for next day. Letting profit run - but ensuring it was already a guaranteed Risk Free Trade. The remaining position was stopped out today at a Trailing Protect Profit Stop. Which I had put some distance away from my Entry Price. A net highly profitable trade closed within two days.
Not all the time a Stock moves in our anticipated direction. It does so many times when we follow a roust and disciplined trading way. But not always.
Sometimes market moves opposite to what we anticipated and we have to take small loss, close the trade and move ahead to next trade.
Some other times we may be flexible enough to switch direction and come out with some profit. Here is exactly that happening with JPM.
JP Morgan (JPM)
JPM did not turn out as we anticipated. It moved sideways for two days since we analyzed it and then on 18th May it shoot up - as shown below in CUE Hop On chart below.
JPM going up in itself probably would not entice a Superior Profit trader to display flexibility and switch from intended Short direction to a Long trade on JMP. There were few more facts in play.
On 18th Fed meeting minutes were due at 2 PM. On this day, market struggled to go up. However, Financials were soaring right from beginning of day. As if someone knew what the minutes will say and what its probable impact on banking stocks might be. And were buying up many banking stocks in advance. Resulting them to soar.
Below is the sector wise performance of Dow Jones Industries index as of end of day. Financials were strong from beginning of day itself and closed the day as the strongest sector of Dow Jones.
That observation, along with relatively narrow Stop Loss from Fine Tune Template could lead Superior Profit Trader to switch from Short to Long Direction and make a profitable Day Trade - as explained below.
This is how the Day Trade would have played out - using CUE Fine Tune Template.
It was a profitable trade. No - I did not take it; I missed this opportunity. And I am not sad about it. I don't try to take every possible Superior Profit trade that comes in the market.
However, did you see in the sector wise breakup of .DJI above that Industrials were poor performer today?
And do you remember that we had DOW in our original Community post being a Bearish Stock? I was watching DOW since I identified it to be Bearish ... and I did take the DOW Short today and profited from that.
Dow Chemicals (DOW):
Dow had a Bearish Candle yesterday in Daily Hop On (not shown here ... you may look it up on your CUE Charts). However, as the Candle Flow was still Bullish (cyan), one would not enter Short. And would watch it today.
Today DOW was Bearish (part of Industrials - which were also Bearish as a whole) from beginning of day.
And as broad Market fell, DOW fell even more.
Here I could time the trade well. And could confidently add to my position. Using Weekly Options -I booked more than 130% profit in a day on partial position - making the entire trade a guaranteed trade a Risk Free Trade. Below snapshot explains the trade.
These trades illustrate the many opportunities that a Superior Profit Trader may encounter and exploit. I have traded these using Options. However, the same trades could be taken using Stocks or ETFs.
Before I end this blog, some further discussion of the trader's characteristics in display here is warranted.
Different Characteristics in Different Trades/at Different Times
We watched several characteristics in action. Being prepared, being patient, improvising, being flexible and being confident.
Being prepared and patient are all good. No further discussion required on that probably. They are essential and useful in trading. And that is that.
Improvising may need a few words. This characteristics come after observing the Market for a while. After trading for a while. It is like in any other skill. Photography. Playing violin. Or in golf. Trying to improvise from the early days of trading career may be frustrating.
Then comes the matter of being flexible and confident. These may be two edged sword. They are indeed useful - and allows an experienced trader to capture more from the opportunities the Market presents. However, they also incorporate the risk of going into the realm of gambling. To chase a trade. Or to break one's own trading system rules. Or doubling down too much into a losing trade. Worse than even that ... to not cut loss if Stop Level is touched.
How to avoid those pitfalls?
Like in the case of improvising, one may wait for a while before starting to be flexible (to reverse direction in a trade) or to be confident (to add to a losing position).
One might also practice for a while on simulation money first. Before going all out with flexibility and confidence.
With a bit of practice and discipline, trading can be fun. And even profitable. The above examples illustrate that.
Citizen of Main Street.