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  • Friday, August 26, 2005

    Trade Review / TOL Short Sell

    Sometimes trading systems need minor adjustments to enhance the profit potential. Most of my trading is done by reading the Nyse open book and combining some chart analysis along with it.Here's a trade where I really could have implemented a better trading strategy,especially with the kind of support I had in the book.By support I mean the number of shares and orders still showing at or above my point of entry short.

    This strategy works well with Nasdaq or Nyse stocks. I only trade Nyse,but the trader whom introduced me to this strategy uses it on Nasdaq and does very well.The strategy consists of a 5 period simple moving average and a 15 period exponential moving average(respectively called the 5 sma and 15 ema). Yesterday Tol was traded to the short side therefore I will only explain the short side of this strategy,everything can be reversed for longs. When the 5sma and 15ema are trading sideways and the 5 crosses down thru the 15 it begins to create a small opening which I will call a channel as you can see in the top of the chart.Now as price trades down,the channel will begin to expand/widen and price will eventually trade right into the 5sma,this is where you take your entry as close to the 5sma as possible using the 15ema as a protective stop.Depending on the width of the channel,you want to use your own discretion as to your risk tolerance.This method works best if you can use the 15ema as your stop,which in this example was never more than .10 to .15cents away from the 5sma.

    Notice in the chart where the channel begins to widen and the 5sma begins to trade down away from the 15ema.I then found a good entry short off the 5sma and plenty of support in the nyse book.My entry was at the top of the big red bar right after that thin shooting star and below its open at 48.75.I based my out/exit off the Nyse book and as the trade progressed(rather quickly) I decided to book the profit(again rather quickly) at 48.51 for a +.24 profit.Here's my point of this trade,notice that price never penetrated back up through the 5sma after my entry short,and well never even came close to the 15ema.Had I used this method this trade could have easily produced a .60 to .70cent winner.At the same time I had never lost my original exit, the orders remained in the book.I also had my MACD trending down across all three time frames of 5,15,and 60 minute charts.The 5 and 15 period moving averages can be used effectively across most time frames,but are most effective across the 5 minute and 15 minute charts.(You can also use a 6 minute and 13 minute chart).This method also involves some other details that can be added on for even more confirmation of the move. I will post more about that soon...


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