breakaway gap positional plays
TRANSCRIPT
Longer term gap breakaway strategy:
Link to livestream: http://livestre.am/NmqO
Notes from Livestream:
-Has to be breakaway gap from current longer term trend-Gaps breaking away from tops of long term trends OR breaking away to the upside of the bottom of long term down trends-Has to be a MAJOR gap that cuts away from the entire range-Example 5/26/11 HGG-The more things it cuts through like moving averages, a short term patterns, a multi month pattern, and the more damage/pressure it delivers in regards to breaking current long term trend, the stronger the move is.-Volume should be incredibly high -Be careful not confuse gaps with exhaustion or continuation or area gaps.-These happen all through earnings season. Scale out or exit position before next earnings. -Low maintenance, daily chart glances, and be patient.-Can re-test levels below your entry and require months.-Have to have the big picture in mind. No weekly charts, not the right time period.-As each earnings season comes around, your positions get recycled. Exiting current positions and adding new ones.-Must make sure YOU do not screw up the gaps. Don't get emotional. Don't watch intraday. Glancing once a day is fine, preferably end of day.-Start with small position, then gradually add with continuation gaps. -You will have losses, but they're not as common as wins.-Everything must line up. Works for upside and downside breakaway gaps.-Cleaner the chart the better. Nice clean trend.-Stops are case by case, slightly below gap fill, long white or red candle, give it to high or low of candle. Gap/size of candle determines where to place stop. Usually should not exceed high/low of breakaway down/up candle. MA's make a difference. You can always ask JL for advice.-Aggressive entry at open or conservative at end of day.-Plant the seed and let it grow… let it do it's thing. Treat it like a plant!!! It takes time.-Closer to longer term tops or bottoms are the best possibilities.
CGW online articles regarding gaps and such:
http://chartsgonewild.com/wp-content/uploads/2010/07/Big-Profit-Patterns-Using-Candlestick-Signals-And-Gaps-Stephen-W-Bigalow.pdf
http://chartsgonewild.com/wp-content/uploads/2010/07/Using-Up-Gaps-To-Anticipate-Upward-Price-Moves.pdf
CGW Chatroom notes/discussion regarding positionals/breakaway gap plays:
for the positionals on breakaway gaps
May 26 2011, 4:10 PM
John Lee: usually they're bought on the same day then 'recycled out' before the next earnings report
May 26 2011, 4:13 PM
John Lee: and these breakaways are ONLY done at the tops or bottoms of trends
May 26 2011, 4:13 PM
John Lee: nothing in-between
May 26 2011, 4:15 PM
John Lee: if people want me to sort of cover this, i can go through it. it is a core strategy i employ for multi-month holds
May 26 2011, 4:16 PM
John Lee: and it is extremely effective, but requires a lot of patience
May 26 2011, 4:16 PM
John Lee: and there is strength in numbers
May 26 2011, 4:16 PM
cath_campbell: yeah, that would be awesome John!
May 26 2011, 4:16 PM
cath_campbell: and if you have examples of recent trades you took, or ones that are looking good maybe that would be great too!
May 26 2011, 4:16 PM
John Lee: because the win rate on breakaways is high and any losses will get cancelled out
May 26 2011, 4:17 PM
John Lee: the percentage differences variance will be wider however
May 26 2011, 4:17 PM
John Lee: resulting in a small handful of double-digit losses, but far more double-digit gainers
May 26 2011, 4:17 PM
mhass33: interesting
May 26 2011, 4:17 PM
mhass33: i never learned this one
May 26 2011, 4:17 PM
John Lee: but the way that worked best for me was to just add on each continuation gap following the breakaway
i normally dont go over long-term stuff
May 26 2011, 4:18 PM
John Lee: and i never have these charts up
May 26 2011, 4:18 PM
John Lee: just a once or twice per day peek
May 26 2011, 4:18 PM
mhass33: id like to learn more about long term strategy in general
May 26 2011, 4:19 PM
John Lee: so there are big wins and loses, but this is where the win ratio comes in because its very high
May 26 2011, 4:19 PM
strategy: how do you set stops on longer term positions? do you just draw a trendline and set it under?
May 26 2011, 4:19 PM
mhass33: i have trouble holding winners for long periods but i am
good at identifying the setups initially
May 26 2011, 4:19 PM
strategy: i'm insanely bad at long term positions but that's where the big money is
May 26 2011, 4:20 PM
strategy: looking at some of the biggest winners, you often have to hold through fairly sharp corrections
May 26 2011, 4:20 PM
John Lee: yea and ppl have to willing to go through that
May 26 2011, 4:21 PM
John Lee: so if ppl kept like 20-30 breakaway gaps, majority of them will perform by definition
May 26 2011, 4:22 PM
mhass33: so youre basically saying the highest probability positionals are the ones that havea big breakaway gap in the setup
May 26 2011, 4:22 PM
mhass33: ?
May 26 2011, 4:22 PM
John Lee: chart
May 26 2011, 4:22 PM
John Lee: the gap itself is the setup
May 26 2011, 4:23 PM
John Lee: an example off the top of my head would be stec
May 26 2011, 4:23 PM
mhass33: the gap in november?
May 26 2011, 4:23 PM
mhass33: or the breakdown recently
May 26 2011, 4:24 PM
kenjohns6: I just chimed in on this conversation... as you know already, I'm extremely interested in learning longer term positional plays
May 26 2011, 4:24 PM
kenjohns6: ready for any info. whenever
May 26 2011, 4:25 PM
John Lee: this is just an example, but this **** happens all the time
May 26 2011, 4:25 PM
John Lee: http://i539.photobucket.com/albums/ff358/WeeklyTA/STEC.png
i539.photobucket.com/albums/ff358/WeeklyTA/STEC.png
May 26 2011, 4:26 PM
John Lee: orange gaps are continuation gaps for scale insred circle 2009 september is a breakaway gap down
May 26 2011, 4:26 PM
John Lee: orange circles indicate continaution gaps
May 26 2011, 4:26 PM
John Lee: everything else after this "in-between" so we dont touch
May 26 2011, 4:26 PM
John Lee: because its not at the top or bottom of an actual trend
May 26 2011, 4:26 PM
John Lee: holing period is several months
May 26 2011, 4:26 PM
strategy: you could also add on the breakout on 04/24/09 right?
May 26 2011, 4:26 PM
John Lee: i think always
May 26 2011, 4:27 PM
John Lee: there hasnt been anything shorter than 2 months
May 26 2011, 4:27 PM
John Lee: no just continuation gaps
May 26 2011, 4:27 PM
John Lee: this is a really lazy way of managing money
May 26 2011, 4:27 PM
John Lee: but it works
May 26 2011, 4:27 PM
mhass33: so would you qualify DELL as one of these that ahppend recently
May 26 2011, 4:28 PM
John Lee: NO
May 26 2011, 4:28 PM
John Lee: did u just listen to me
May 26 2011, 4:28 PM
John Lee: that **** is in-between a range
May 26 2011, 4:28 PM
John Lee: tops and bottoms with breakaways
May 26 2011, 4:28 PM
John Lee: this is not enough
May 26 2011, 4:28 PM
John Lee: you would subject yourself to further ranging price action
May 26 2011, 4:29 PM
John Lee: and this stock wouldnt even be worth my time for a positional
May 26 2011, 4:29 PM
John Lee: lets take a look at HGG
May 26 2011, 4:29 PM
RickH: similar to SLV last august
May 26 2011, 4:29 PM
strategy: gotta run off to yet another meeting for a bit
May 26 2011, 4:30 PM
mhass33: j look at this weekly of DELL theres a breakaay gap above long term trendline http://screencast.com/t/4TxDA6yQy
2011-05-26_1629 - mhass33's library
May 26 2011, 4:30 PM
mhass33: if thats not right then im not understanding
May 26 2011, 4:31 PM
John Lee: when did i say look at weekly charts
May 26 2011, 4:31 PM
John Lee: no weekly's reqiured
May 26 2011, 4:31 PM
mhass33: i only did that to show scale of trendline
May 26 2011, 4:31 PM
mhass33: wouldnt fit on daily
May 26 2011, 4:31 PM
John Lee: looking at HGG, i can say that there is a high chance of it
going to the 200-day
May 26 2011, 4:32 PM
John Lee: another example
May 26 2011, 4:32 PM
John Lee: is MSO
May 26 2011, 4:32 PM
John Lee: ilooking back about 1.5 years
May 26 2011, 4:32 PM
John Lee: breakaway gap that effectively ends a year-long decline
May 26 2011, 4:33 PM
John Lee: stop would likely be below the 200-day, but its going to take time for the 200-day to slope positive
May 26 2011, 4:33 PM
John Lee: but they're actually looking for buyers to be acquired so that might be a bit catalyst driven in the future
May 26 2011, 4:34 PM
John Lee: this is the longer-term strategy for earnings gaps
May 26 2011, 4:34 PM
John Lee: primarily breakaway gaps ONLY at tops and bottoms of trends with the breakaway starting a new, opposite trend
May 26 2011, 4:34 PM
John Lee: which will take months to materialize
May 26 2011, 4:34 PM
John Lee: but well worth the wait
May 26 2011, 4:34 PM
mhass33: ok i see
May 26 2011, 4:34 PM
John Lee: and you would reload the portfolio about 3-4 times a year, so a 300-400% turnover rate
May 26 2011, 4:35 PM
mhass33: so what ur saying is the breakaway in DELL back in february didnt happen at a bottom
May 26 2011, 4:35 PM
John Lee: dont expect to hold **** for a year or longer with this
May 26 2011, 4:35 PM
John Lee: and dell is just not worth anyone's time
May 26 2011, 4:35 PM
John Lee: thats a very questionable gap
May 26 2011, 4:35 PM
mhass33: i just saw a breakaway coincide with a long term trendline so i thought it was significant
May 26 2011, 4:36 PM
RickH: would you play these kinds of trades now with the market neutral, or would you wait for market to be breaking to new highs before initiating?
May 26 2011, 4:37 PM
John Lee: doesnt matter actuallyu
May 26 2011, 4:37 PM
John Lee: the key components must be met however
May 26 2011, 4:37 PM
RickH: you can play these longs is a down market too?
May 26 2011, 4:37 PM
John Lee: i just gave them
May 26 2011, 4:38 PM
John Lee: and another thing, dont have too much money in any one posittion
May 26 2011, 4:38 PM
John Lee: they have to spread equally
May 26 2011, 4:39 PM
John Lee: taking money away from other positions to add to the other positions would sometimes rob that latter position from reaching its potential
May 26 2011, 4:39 PM
mhass33: so do you give a 10% stop or do you try to find a reasonable support level within that percentage range
May 26 2011, 4:39 PM
mhass33: cuz u mentioned double digit loss level
May 26 2011, 4:39 PM
John Lee: many of these trades end when there is a opposite breakaway gap, obviously its better to get out before that, but thats when u pay attention to when they report earnnigs next, so it can be avoided
May 26 2011, 4:39 PM
John Lee: 10% wouldnt be enough initially in most cases
May 26 2011, 4:40 PM
John Lee: i already covered this
May 26 2011, 4:41 PM
John Lee: ok so
May 26 2011, 4:41 PM
John Lee: maybe i should get on livestream or something
May 26 2011, 4:42 PM
kenjohns6: Shoot, I have to go meet a **** electrician at my rental!
May 26 2011, 4:42 PM
John Lee: which rental is this
May 26 2011, 4:42 PM
kenjohns6: ok, if you do go I'll just listen later
May 26 2011, 4:42 PM
kenjohns6: family one I'm rehabbing
May 26 2011, 4:42 PM
kenjohns6: be finished this weekend
May 26 2011, 4:42 PM
kenjohns6: then I'm free until they call me and say a lightbulb went out
May 26 2011, 4:44 PM
John Lee: oh cool
May 26 2011, 4:44 PM
kenjohns6: I can copy all the notes from the archives and save your recording to my drives to put in my master TA archives
May 26 2011, 4:44 PM
John Lee: i have a rehab in baltimore which i am currently not working on in buthers hill
May 26 2011, 4:44 PM
John Lee: butchers
May 26 2011, 4:44 PM
kenjohns6: not working on?
May 26 2011, 4:44 PM
kenjohns6: really?
May 26 2011, 4:44 PM
John Lee: yea well i have other **** to do
May 26 2011, 4:44 PM
John Lee: lol
May 26 2011, 4:44 PM
kenjohns6: haha
May 26 2011, 4:44 PM
kenjohns6: obviously
May 26 2011, 4:44 PM
kenjohns6: that's awesome
livestream
May 26 2011, 4:45 PM
John Lee: http://www.livestream.com/chartsgonewild
chartsgonewild - live streaming video powered by Livestream
May 26 2011, 4:45 PM
John Lee: and i will explain this once
May 26 2011, 4:45 PM
John Lee: this is very simple
May 26 2011, 4:45 PM
mhass33: ok cool
May 26 2011, 4:45 PM
kenjohns6: alright guys I have to roll, thanks John, I'll check this out later for sure! gn everyone
May 26 2011, 4:45 PM
John Lee: ok
May 26 2011, 4:48 PM
John Lee: keeps saying camera in use but it isnt
May 26 2011, 4:48 PM
John Lee: hold on
May 26 2011, 4:50 PM
John Lee: wow wtf
May 26 2011, 4:50 PM
John Lee: ok give me 5 mins. im gonna restart
May 26 2011, 4:51 PM
mhass33: k
May 26 2011, 4:55 PM
John Lee: try this again
May 26 2011, 4:56 PM
John Lee: um
May 26 2011, 4:56 PM
John Lee: ok all of my other programs are closd
May 26 2011, 4:56 PM
John Lee: why would the cam still be in use
May 26 2011, 4:58 PM
John Lee: 4590yw490j4095hj0atj0rtjh0trjh0trjh0tj
May 26 2011, 5:00 PM
John Lee: mother
May 26 2011, 5:00 PM
John Lee: ******
May 26 2011, 5:00 PM
John Lee: pissing me off
May 26 2011, 5:01 PM
John Lee: ok lets try my laptop them
May 26 2011, 5:01 PM
John Lee: gorkgoaerkgoerkge
May 26 2011, 5:05 PM
hakahaka: yep
May 26 2011, 5:05 PM
John Lee: can u guys hear this
May 26 2011, 5:05 PM
chickenpho: yes
May 26 2011, 5:07 PM
mhass33: yup
May 26 2011, 5:23 PM
mhass33: so for an example like SWKS a few months ago, if someone played this where would a stop out have been
May 26 2011, 5:23 PM
mhass33: weeks ago*
May 26 2011, 5:24 PM
mhass33: actually looks kinda like an entry now lol
May 26 2011, 5:27 PM
chickenpho: did you talk about stops and where to put them?
May 26 2011, 5:29 PM
mhass33: man im confused about what constitutes breakaway, does FFIV in april count as one
May 26 2011, 5:29 PM
chickenpho: so something like mso would you see if the 200holds
May 26 2011, 5:30 PM
cath_campbell: how about FTK in Nov 2010?
May 26 2011, 5:32 PM
mhass33: dam i owned FTK from 1.68 in october and sold around 3 bucks
May 26 2011, 5:32 PM
mhass33: wish i knew about this strategy then
May 26 2011, 5:33 PM
hakahaka: what increments do you scale in relative to projected full position?
May 26 2011, 5:35 PM
RickH: so a stop on HGG at ~12.40, or would you choose ~ 13 with the 20 and 50 there?
May 26 2011, 5:40 PM
mhass33: haha
May 26 2011, 5:41 PM
mhass33: ok how bout CLNE end of march
May 26 2011, 5:41 PM
mhass33: didnt follow through
May 26 2011, 5:42 PM
mhass33: im just trying to get an idea of potential fails
May 26 2011, 5:44 PM
RickH: how many of these do you have on at one time, you rotate around 3-5 or so depending on what crops up? and position size, are these 2-5% size, or do you go as high as 10%. sorry if you covered these parts, just let me know and i will listen again, i missed a few mins
May 26 2011, 5:45 PM
RickH: i would guess the more you do the more it smooths out the odds too. but over market trend is not a consideration?
May 26 2011, 5:46 PM
mhass33: holy **** AVD broke the hell out this is the one i was talking about the other night
May 26 2011, 5:46 PM
mhass33: if that was a gap that would prob be good
May 26 2011, 5:46 PM
RickH: *but overall market trend is not a consideration?
May 26 2011, 5:48 PM
RickH: lol, all in MSO and HGG!!!
May 26 2011, 5:51 PM
RickH: yes, this is really good
May 26 2011, 5:57 PM
hakahaka: jl eats dessert?
May 26 2011, 5:57 PM
hakahaka: the yolks, maybe
May 26 2011, 6:06 PM
John Lee: no yolks
May 26 2011, 6:06 PM
RickH: Thanks John! That was super good.
May 26 2011, 6:06 PM
John Lee: no dessert
May 26 2011, 6:06 PM
hakahaka: awesome session, thx john!
May 26 2011, 6:07 PM
cath_campbell: thanks John!
May 26 2011, 6:07 PM
John Lee: no doughnuts, no cookies, no ice cream
May 26 2011, 6:07 PM
hakahaka: lol
May 26 2011, 6:07 PM
John Lee: basically nothing that NYCJAYNU would pick out
May 26 2011, 6:07 PM
mhass33: thanks j
May 26 2011, 6:07 PM
chickenpho: Thanks JL, I haven't had much time to day trade this month so this is excellent to add to the toolbox
May 26 2011, 6:07 PM
John Lee: its a good strategy, low maintenance
May 26 2011, 6:07 PM
hakahaka: another valuable strategy for the toolkit
May 26 2011, 6:08 PM