A Trade A Day

Back from vacation, I was scratching my head this morning thinking about where the money’s going to be made in 2008. Taking a look at the weekly chart of the Dow, the pattern forming is ominous.

I see the Dow a shoulder and a neckline break from sub 13000 for 2008. So, I’m going to be seriously looking at short candidates this year as long as the current head and shoulder formation holds.

I am also reminded of an article at stocktradingtogo.com. entitled 13 Great Ways to Invest in Oil Without Buying Barrels. Oil has made some impressive gains in 2007. Crude is up 60% for this year and Blain outlined multiple profitable plays. If you subscribe to the philosophy that what goes up must go higher than I think there are a few trades worthy of consideration in this sector.

Let’s take a look at crude as it stands today.

After a major cup and handle style correction that began in 2006, crude oil has had it’s first correction after breaking out in September of 07. Oil can’t run up forever without causing serious problems for the US and World economy, but I think crude can go 20 or 30 more dollars before us pleebs take notice.

If you don’t want to trade crude futures (and I don’t blame you), here are a few individual stock trades for you.

USO is an etf that tracks the price of oil. So, you won’t be able to get the leverage of a futures contract, but at least you’ll be able to sleep at night.

XOM is a bit of a slow mover, but the ascending triangle is unmistakable.

CVX is in the same ascending triangle pattern as XOM.

Of course, the post wouldn’t be complete without a short candidate. As I mentioned at the beginning of this post the Dow’s current price pattern looks like shorts may be the way to go in 2008. CLB has topped out and is correcting in the form of a bear flag. I like it under the 115 area.

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I’m offically off the rest of this week.

Here’s a selection of articles to keep you going.

A Free Tool to Find Good Trades

Making Money with Sectors

Hammers

Top 5 Trading Cliches

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Let’s see if I can put some 1-2-3’s to work.

Here are 5 stocks flashing the 1-2-3 setup. Entry is intraday. You’ll have to check with your broker to see if there are shares available to short.

1. MAR

MR could end up being a bear trap as today’s action may have already trapped some. I’ll be ready to go either way.

2. PL

3. SVU

4. IM

5. LTD

Good Luck!

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This is my second article in my 5 part series on the patterns I trade. In part 1 I discussed trading bases.

In part 2 we’ll take a look at one of my all time favorite day trading patterns. It’s called the 1-2-3. I first learned this pattern from Toni Hansen and the Trading from Mainstreet crowd. Toni has a description of the pattern on her site. However, the 1-2-3 is really easy to envision.

It starts with a wide range bar. Marubozu-like, but the heads don’t need to be shaven. The next bar/candle in the pattern is a narrow range candle. The one requirement of the narrow range candle is that the high of the narrow range candle and the high of the previous day’s wide range candle need to be the same. The entry is over the high of the narrow range candle. Entry is executed intraday.

There are a few reasons why I like to trade 1-2-3’s.

1. They’re easy to see. There’s no guess work when it comes to picking out a 1-2-3. Wide range candle, narrow range candle, high’s are equal.

2. I like to trade extremes. Heavy buying is indicated by the wide range candle and increased volume.

3. Lower risk. As stated above, the wide range candle already tells me this stock is hot. I want to get in, however, blindly putting in my buy order would be careless. The narrow range gives me a low risk entry as my stop is slightly below the low of the narrow range candle.

4. The merging of time frames supports the intraday trade. I rarely trade intraday without some kind of reason on the daily chart.

In the past I’ve seen 1-2-3’s occur frequently intraday and on the daily time frame. Although now I only trade them if they occur on the daily time frame.

Here’s a 1-2-3 I’m looking at for next week:

It works for shorts too! Just flip the pattern upside down.

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No specific trade updates this week. I expect as the year draws to a close, I’ll have fewer trades. I like to use the end of the year to get ready for next year. I like to plan out goals and review my trading from the year.

As we move into next week, I’ll continue my setup articles. In the mean time. Here’s a selection of my strategy articles to check out.

Extreme Moves

Marubozu

Rolling Over

Cutting Losses

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