Today’s Trading Lesson From TradingMarkets

Brice

Five Ways To
Pinpoint Long And Short Setups With TradersWire

By Duke Heberlein

While the
Insights From The War Room are a great tool for traders to use in
their pursuit of profit in the markets, based on emails I get, many members are
not taking full advantage of another powerful assistant to their endeavors: the
java applet alerts. Some members are unaware of what this is and how to access
it. Hopefully, however, you will have a greater understanding of what this part
of the TradersWire is — and five
ways you can take advantage of the applet — immediately after careful study of
the examples in this article.

What The Java
Applet Is

The java applet is part of the only
service in the world that gives you up-to-the-second price action and volume
alerts, combined with real-time, actionable trading analysis. When you click on
the TradersWire icon on the homepage,
you will bring up the java applet at the bottom of your web browser.

 

Via the applet you will
receive — continuously throughout the trading day — alerts on the most
important price-and-volume movements on a universe of over 5,000 stocks. These
include up-to-the-second alerts of:

• 10 and 20 percent pullbacks off
  highs and lows within the last 10 trading days
• Stocks that trade 100% of their
  average daily volume prior to 1 PM eastern time
• 60-day new highs and lows 
• 52-week highs and lows 
• Stocks touching 50-day and
  200-day moving averages (something many institutions focus on) 
• Instantaneous alerts to large
  buyers and sellers on the exchanges
• Program trading alerts

Now that we know what the java applet
is, let’s jump into some specific strategies to utilize the alerts in your
trading.

Pullback Alerts

Trading pullbacks — pauses or
temporary reversals within trends — can be a high-reward, low-risk approach if
used in a proper fashion. One of the safest ways to employ the pullback strategy
is to use it in strongly trending markets, most often defined by a three-month
relative strength reading of 90 and higher for long opportunities, and of 25 and
lower for shorts, or an ADX reading above 30. If you use the stock scanner to
make up lists of stocks with these characteristics to monitor, you can then
watch the applet during the day for pullback alerts, or use the search feature
at the end of the day to see which stocks triggered the pullback from high/low
alerts.

Arch Coal (ACI)
had a three-month relative strength rating of 98 and an uptrending ADX of 45
on April 3 when an alert is triggered as it trades 10% lower than the March 28
high. The stock then gains more than 4 points out of the pullback.

 

With a three-month relative strength
rating of 23 on March 27, Adelphia Communications (ADLAC)
is a good short candidate. When the alert comes across the applet that day
as it pulls back 10% from the low of March 23, the stock goes on the radar.
Three days later the stock loses 20% when it falls out of the pullback.

 

Comverse Technology (CMVT)
is stuck in a downtrend, with a three-month relative strength reading of 11
and a downtrending ADX of 36 on March 23, when the applet alerts a 20% pullback
from low. The next day the stock resumes its meltdown, dropping almost 19 points
to the April low.

100% Average Volume
Before 1PM Eastern

Heavy volume can exhibit both heavy
buying and selling pressure. When a stock trades more than 100% of its average
daily volume prior to 1:00 p.m. Eastern and is also in a pattern setup, the
likelihood for follow-through in the direction of the accumulation or
distribution is increased.

Micromuse (MUSE)
triggers one of these alerts on April 5 as the market is snapping back after
a sell-off. MUSE forms a Slim Jim just under the level of the intraday high,
undercuts the channel slightly without failing, then brings in more big volume
on the breakout from the pattern.

Siebel Systems (SEBL)
is up on the morning of April 19 as it trades more than its average daily
volume of 18 million shares by 12 noon. The subsequent breakout takes it more
than 4 points higher.

Use this alert when it
comes up. Search the daily and intraday charts for pattern setups, to the long
side if the alert happens when the stock is positive on the day and look at
shorting opportunities when the issue is negative on the session.

52-Week Highs/Lows and Two-Month Highs/Lows

New highs and lows many
times are a tip off to momentum yet to come. Traders of momentum will look for
stocks making new highs as possible long side trading chances and new lows as
shorting opportunities. Since there is no overhead resistance or underlying
support, they often will move in the short-term.

Applied Materials (AMAT)
hits a new two-month high on April 18, then trades above it the following
day. When it breaks out of an intraday cup and handle, AMAT runs for more than 3
points.

Sepracor (SEPR)
hits a new two-month low and then makes a two-day pullback off it. When the
stock falls out of the short pause, its meltdown resumes.

Gilead Sciences (GILD)
gives us two shots at upside action, as it moves for three days initially
after making a new two-month high, then explodes out of a 1-2-3-4 pullback for
more than 10 points.

Touch
and Re-Touch of 50-Day Moving Average

A stock that remains
above its 50-day moving average is perceived to be in an intermediate-term
uptrend, while those that remain below it are thought to be in an
intermediate-term downtrend. Institutional traders have historically used the
50-day moving average as an intermediate-term support and resistance level.
Institutions will often buy a stock when it touches its 50-day MA, and
conversely, will often unload a stock when it fails to hold above the 50-day MA.

Genzyme (GENZ)
makes a nice bounce higher off its low, then pulls back and touches the
50-day MA. It makes one move upward out of the first pullback, then another stab
higher out of an inverted head and shoulders when it violates the neckline of
the pattern.

Comverse Technology (CMVT)
is downtrending when it recaptures the 50-day MA and fails to hold. After
the first continuation short, two additional pullbacks from lows provide
substantial gains to the short side.

Buy
and Sell Program Alerts

When buy and sell
programs hit the tape, the java applet will scroll an alert across the browser
window. Since program trading pushes stocks higher as arbs dump futures
contracts and buy the stocks in the underlying index, or creates selling
pressure when the sell programs do the opposite, any pattern setups on the
intraday charts are likely to head in the direction of the program trading.

THQ Inc. (THQI)
is trading in a Slim Jim near its intraday high when program buying hits the
tape around 15 minutes prior to the breakout. Programs help to push the Nasdaq
almost 70 points higher in the last half of the days trading.

These are just some of
the ways to make use of the java applet in your trading. Regular use of the
alerts it broadcasts will help you to separate the wheat from the chaff and sift
through all the daily noise to find the best fish to trade in the stock ocean.