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I have always believed that the most important factor when it comes to successful trades is the market environment. Environment is more significant than even methods. As traders, we seek to profit from intraday price volatility. This volatility is fertile when there is a combination of volume, trends and follow-through. A ‘fertile’ environment is one that gives nice clear set ups with direct immediate follow-through. The opposite of follow-through is chop. Imagine going from point A to point B in a single line as opposed to a constant zig zag. The fertile environments are always during the earnings season where there is an overwhelming amount of news that forms gappers and dumpers which in turn bring in volume and followt-hrough.
As earnings season rolls in, make sure that you are familiar with the gapper and dumper rules as explained in prior articles. Stocks that gap up and hold the 60 min 5 for a day can often resume the up-move after some intraday basing. This comes in the form of 60 min pup breakouts and often lead by shorter time frame mini pups and pups. Pup patterns are when the 5 period simple moving average stalls sideways as the 15 period simple moving average continues to rise. Eventually, steam builds in the contracting trend channel to cause an explosive breakout above the 5 period moving average usually with upside targets at the upper Bollinger bands.
This was the case when we played (NRPH | Quote | Chart | News | PowerRating) 10/10/06. NRPH formed a monstrous gap the prior day peaking over 20 points off the open. It spent the morning forming a base as the 60 min 5 period ma was flat. When NRPH finally cracked back up through its 60 min 5 period ma on 8 min mini pups and 3 min pups, we took the LONGS at 44.10. We rode the nice fast breakout to lock into the stinky 5s upper range into the panic buyers at 45.90, out + 1.80. This was a thin biotech stock so lighter shares were applied.
Watch for gapper/dumpers as earnings season comes into play. Stick to the first hour trading always but wait out the first 10 minutes.
Good trading gang!
Jea
Yu has been involved with the equities markets for over 10-years. He specializes
with intraday trading in the U.S. equities and futures markets. To receive a
free 7 day trial to Jea Yu's Underground Trading Pit,
click here or call 888.484.8220 ext. 1.
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