Why I Like Trading NVDA

18Sep
2017

9/18/17 – In videos, blogs, and articles, you hear traders talk about why they like trading certain stocks. Given the right market conditions, these stocks tend to trend all day long with multiple potential entry points. NVDA is one of my favorite stocks to trade for this particular reason.

Before I get into why I felt this stock would run, let’s look at what happened on Friday. On the daily chart below, you can see it opened at about $172.86 and closed at $180.11. You can also see with an open price of $172.86, the only time this stock traded above this level was on August 8, 2017. Therefore, it was gapping over a month’s worth of daily ranges.

Watching the pre-market action, on the 1 minute chart below, you can see the stock kept climbing higher until a few minutes before the open. In addition, the high of the pre-market was above yesterday’s range and above the highest price over the past month. Therefore, if NVDA broke the pre-market high, given what we know by studying the daily chart, there was a good chance this stock was going to run.

On the 1 minute chart above, the first aggressive entry was the break above the pre-market high, which was $173.48. The 2nd entry was a break above the high of the 1 minute bar (circled above). The 3rd entry was the break above the trend line around 9:37 AM ET when we had 3 bars with lower highs and lower lows (see arrow on chart). In addition, you can see prices never closed below the yellow line, which is a 10 simple moving average.

On the 5 minute chart, the first bar was very large, so the break above the high of the 5 minute bar was a little risky. However, this was the 4th potential entry. Because the bar was very large, I would have waited for a pullback pattern, which we got around 10:25 AM ET. That was the 5th potential entry (see arrow below). Throughout the day, there were other potential entry points, such as breakouts above the daily high, other pullback patterns, etc. if you missed the ones within the first hour of trading.

One thing to mention about trading NVDA at the open, this stock tends to have a large bid/ask spread. As time progresses throughout the day, the bid/ask spread narrows. Therefore, before trading any stock that is new to you, make sure watch how it trades for the first couple of minutes at the open and if you want to trade a stock with a large bid/ask spread, make sure you use limit orders and/or cut your normal share size down to compensate for the additional risk. On days similar to today, it helps to enter and exit your positions at multiple levels throughout the day. But, make sure you hold onto enough shares to let them ride all day to capture large movements.

How to Use Market Context to Manage Risk

06Sep
2017

9/4/17 – Almost every article one can read about becoming a successful trader discusses risk management. In addition, almost every article that discusses becoming a successful trader talks about letting the winning trades run. So, how do you know when to let a winning trade run and when to let it run to a certain point and get out? On Friday, NVDA and the general market gave us clues that if we were in NVDA right out of the gate, we should get out when we were up.

Below is the daily chart for NVDA. You can see it was gapping up above the $170 level, which was above the previous day’s high. In addition, the jobs report that morning was a good report and all of the indices were gapping up. So, we were looking to go long if we received a buy signal.

The charts below show the QQQ on the left and NVDA on the right. The premarket high for NVDA was about $170.74, which is indicated by the white line. Therefore, an aggressive entry was a break above the pre-market high.

Now, if you look at the boxes on both charts above, which shows the 9:35 bar, you can see NVDA was going up, but QQQ was falling below pre-market lows and below the previous day’s close. At that time, all of the indices were fading as well. Moving to the 1 min chart below, you can see the break of the pre-market high occurred around 9:38, so we had a buy signal. However, when the general market faded, I watched the 1 minute chart for any inidication to exit the position and saw the price action circled below and decided to get out. As prices consolidated and failed to break out higher, and given that the general market wasn’t running, this was my signal to get out when prices broke the low of the pin bar in that consolidating area. Generally, I like to hold positions with the direction of the general market. If the general market (QQQ, DIA, IWM, and SPY) are not moving together in the same direction or if they are moving in the opposite direction of my position, then I will exit my position.

How to Use Pre-Market Price Action and 1 Minute Chart to Find High Probability Trade Setups

12Aug
2017

8/7/17 – Today in the trading room, the moderator mentioned TSN was a potential gap-and-go play. TSN had earnings this morning and gapped up over the $65 level. On the daily chart, you can see prior to today, the next potential stopping point was around $67, which is evident by the two spikes at the beginning of February and end of April.

Watching the pre-market price action on the 5 minute bar chart, you can see the prices bounced between $65 and $65.5. Right before the market opened, prices closed near the high of the pre-market session (see circled bar below). When stocks exhibit this type of price action before the market opens, there is a good chance the stock will run in the direction of the gap within the first few minutes of the regular market hours. An aggressive way to play this would be to take the trade at the break above the pre-market high. A more conservative way to play this price action is to wait for confirmation on the 1 minute bar chart.

On the 1 minute bar chart, we are looking for a pullback after the initial run. Ideally, the pullback will be created by at least 3 bars, where there are at least 2 lower highs and 2 lower lows. The bar circled below is the “trigger” bar. In addition, what makes this particular play more attractive is the low of the trigger bar was only a few cents away from the high of the pre-market high. Therefore, the pre-market high was acting as support for this price movement. The play is to go long at the break of the high of that bar. The entry was about $65.8, the target was $67 (found by looking at the daily chart), and the stop was about $65.2, which created a 2:1 reward-risk ratio.

 

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How to Use Daily Levels to Find Entry Points, Stops, and Targets on Smaller Time Frame Charts

25Jul
2017

7/24/17 – Today in the trading room, the moderator called a short signal for DKS. When I spoke to one of the traders after the market closed, he asked me why the moderator felt it was a good short and said it “triggered” by looking at the 5 minute. Before I answered the question, I asked the trader to help me with an exercise.

If you pull up the chart for DKS, try to find all of the levels on the chart where the tops of candle bars, bottoms of candle bars, opening levels of candle bars, and closing levels of candle bars meet. I drew a couple of them on the chart below in black. They seem to occur on the $2 levels, so at $62, $60, etc.

If you zoom in a little closer, repeat the exercise and you will see that they actually occur near the dollar levels, so $58, $57, etc.

Zoom in closer one more time and you see that some occur at the $0.50 levels, which are marked by the blue lines.

From the daily chart, we can see that there seem to be strong levels at the dollar marks where prices bounce off of those levels, or start and/or finish at those levels. We consider these strong support or resistance levels. The half dollar marks are notable levels as well. One could repeat this price by looking at weekly charts, 4 hour charts, etc. However, the way I trade, the daily levels are sufficient.

DKS gapped down this morning, so we were looking for a fade of the gap, a “gap-and-go” play, or a “check mark” play (all of these are Affinity Trading strategies). On the 5 minute chart, which is one I like to use for triggers, DKS faded the gap, which means it started to move against the daily gap caused by the closing price yesterday and the open price today. As you can see below, prices moved above the $36 level (a strong support/resistance level) and then consolidated between $36 and $36.5, which we identified on the daily chart as another notable level as well. The moderator saw this price action and said DKS is about to trigger to the downside. Once prices started to trade below $36 after they consolidated, the trigger was the break of the $36 level, which is noted by the arrow below. As you can see, prices never traded above the $36.5 level and eventually, fell back to the $35 level. With an entry right below $36, a stop right above $36.5, and a target around $35, you would get about a 2-to-1 reward/risk ratio, which is what we want to see when we take these trades.

 

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