Trading NASD Bottoms

Discussion in 'Strategy Development' started by hapaboy, Dec 26, 2003.

  1. Recently I've been successfully trading NASD stock intraday bottoms, specifically double and triple and quadruple bottoms.

    I'll wait for a drop to the bottom accompanied by a volume surge, and then, if and when the NDX starts ticking back up, go long as close to the bottom as possible.

    Certain stocks will hit the same bottom a couple or even several times a day, and I mean the same bottom TO THE CENT.

    Stop is placed one or two cents below the bottom. Average gain is 5 - 10 cents per share, win/loser ratio about 3 to 1.

    Once I'm in the money I set a trailing stop so that ideally I get out at no worse than breakeven should the trade reverse.

    Anyone else doing this successfully on a regular basis? I keep hearing that trying to trade bottoms is very dangerous, especially if the longer trend is down, but I've been having success with stocks that are in a downtrend as well.
     
  2. Our old buddy Seanote traded this way. He had a knack for buying spike lows and shorting spike highs. Scary but that's why it works.
     
  3. Albert

    Albert

    Could you post a couple of successful trade examples?
    Albert
     
  4. iriekity

    iriekity

    I use this strategy quite frequently and have started a journal of it. The software I use spots double, tripe, quad and other bottom patterns in real-time. I have a filter set to 2 normal volume then I just evaluate and trade. My stop is new lows and I have a longer time frame basically I will sit in it a week or more if it feels right.
     
  5. BEAS last Monday, Tuesday, Wednesday, and Friday. Look at the chart and see how it touched the 12.01 & 12.02 areas several times on those days. I traded on Tues, Wed, and Fri.

    Another good thing about these particular trades were that they had major support at the 12.00 whole number. Whole numbers are generally strong levels of support or resistance.

    I should have held longer in a couple of cases. That's what I really need to work on more - holding my winners.

    Also, JNPR on Monday (22nd). Notice how it touched the 17.83 level three times that day in the afternoon. This was not the absolute low it made at the open, but it was close enough by a couple of cents to warrant going long the third time it touched that level.

    MRVL on the 23rd and the 36.37 level. It's the only time I've traded MRVL, and it can rise or drop very quickly. It's a scary stock.

    AAPL on the 23rd and the 19.70 level. Again, not the absolute low of the day, but with a tight stop okay to try. Very small scalps.

    Of course I don't always get in at those price levels. I'm not afraid to hit the ask on spreads that are only a cent apart or bid a penny higher. Also have to keep in mind how thin the bid looks along with the underlying levels.

    Best case scenario = low is at or close to a whole number or the .50 level, NDX is rising, the low is reached on a volume spike down, and there is good depth on the bid.

    Right now I stay away from gappers.

    Loser trade - JNPR on the 23rd. It bounced off the 18.08 level a couple of times, the last time I went long but it went down a couple of cents past my stop so I got stopped out. Bummer too as those couple of cents were the low of the afternoon.

    Have also gotten bit on VRTS a few times. This stock is real quirky and I'm not going to try trading it this way anymore.

    It doesn't always work, that's for sure, but the stops are tight enough to limit the damage.

    I've only been doing this for a little while, and I'm sure the win/lose ratio is incredibly lucky right now, but with tight stops it's worth a shot.
     
  6. Iriekity,

    What software are you using for this?

    As far as overnights, don't you worry about gaps?

    Thanks,
    H
     
  7. Albert

    Albert

    The more times a price level is hit, the more likely it is to bounce. I suppose that is the reasoning behind the strategy, eh? Does that mean you will reverse and short big breaks below these numbers?
    Do you have a small list of stocks that you regularly trade from or are you trolling looking for the pattern?
    BTW, how many shares are you trading? Is it based on account size, familiarity with the stock or ATR? Do you get out based on a profit target or do you let the market stop you out?
    As an impertinent aside, MRVL was on the 22nd.
    Albert
     
  8. iriekity

    iriekity

    Hi Hap,

    I use alerts from www.trade-ideas.com. I also use their screener page which has the stocks down x days in a row.
    http://www.trade-ideas.com/StockInfo/more_down_days.html
    As far as gaps it happens but I never have enough in one position to where something will hurt me if there is a failure. I have been doing this strategy for a while and have been very happy with result.
     
  9. Actually, I've read in some trading books that the third time a stock hits regular support or resistance is usually when it breaks through, as in the third time is the charm. Does anyone agree or disagree with that?

    As far as shorting, with the demise of bullets I haven't been shorting as often, but the answer to your question is yes, I'll try the short provided it breaks through the support then comes back up to touch that resistance or very close to it on a volume spike and provided the NDX isn't on an upward tear. Stop is set just above the resistance (previous support).
    I do both. I have a very large watchlist and I set alerts throughout the day on many of them, but I do concentrate on a few stocks like LEXR, NVDA, BEAS, and APPL. I spend a lot of time looking at charts for all the stocks on my watchlist searching for a pattern setting up. I have my software setup so that when I enter a symbol into the level II I'll get a daily, 5-min, and 1-min chart for the stock.
    500 - 1000 shares. I generally let the market stop me out, but if I see a bunch of negative factors come together, like plummeting NDX, bid sizes and depth shrinking up and huge size on the ask, I may cancel my stop and put in a limit order on the bid at the bid price minus 5 cents. If I'm fast enough I'll get the best bid, but if not I'll usually get the next level down. Definitely need hot keys for this. BTW, I often get faked out by the market makers on Level II. The above seemingly negative conditions will appear and then, wham, the large ask disappears without hardly a share being traded on it and the ask levels get raised! Also, I'm finding out that in many cases taking a 8 or 9 cent scalp is premature because a lot of the time the stock is good for another dime at least. I need to work on letting my winners run.
    Yep, typo.
     
  10. Interesting. I was using trade-ideas for a while but I just got too distracted with all the alerts it generates even with the filtering.

    Glad your results are favorable swing trading this strategy. I know I'll never be comfortable with overnights.

    Good trading,
    H
     
    #10     Dec 27, 2003