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Practical Tape Reading
********************************************** <Chris> After this session, I'll open the room for questions. <Chris> Every Thursday we go through a Practical Tape Reading Session. <Chris> This is designed to show you an example from the week of a play that is illustrated through our workbook principles. <Chris> We do this with a real time alert to show how our thought process relates to the events occuring at that moment. <Chris> Today we are going to talk of a CMRC breakout alert from yesterday. <Chris> Please bring up the chart http://www.realitytrader.com/calls/cmrc2114.htm <Chris> You'll notice below the chart are the real time comments during the trade to help us follow along. <Chris> First thing we wish to talk about is environment. <Chris> Our last two days has shown us a very nice uptrend, slow and relatively calm, indicating to me that we are seeing a fair market accumulation on many issues. <Chris> We had two negative events from CSCO yesterday and in YHOO today <Chris> both being absorbed nicely by the broader trend. <Chris> Yesterday CSCO interrupted the uptrend in the mid day area but the market regained it's trend after the news was absorbed. <Chris> Today we had a gap down that was met with the same continuation of uptrend we are currently seeing. <Chris> During these phases we look for pullbacks and breakouts to participate in the trend. <Chris> In this time period, we are many times buying high and selling higher, which I understand is sometimes a tough thing to do for many. <Chris> In this case, buying pullback to support levels and waiting for new highs is fair. <Chris> Let's go through this b/o trade. <Chris> As we noted, the market was showing nice steady uptrend. <Chris> CMRC was one issue that was participating as you can see. <Chris> Therefore we have to identify areas for entry. <Chris> The first pink circle illustrates the beginning of the latest uptrend and an area that we happened to miss for entry. <Chris> The steady volume is shown by the black bar brackets in the volume section showing us that interest continues on the slow uptrend climb. <Chris> From missing the move from the 20 1/4 area, we see a nice base in the stock near 21. <Chris> This is represented by the two dark blue lines showing our range of 21 to 21 1/4. <Chris> Here we have defined the range for our trading. <Chris> There are a few prints to 20 15/16 during this time period, but in the prints, very few sells occured at these prices. <Chris> So the following comment was offered. <Chris> 01/10/01 3:33:55 <Chris> CMRC holding 21 to 21 1/4 range <Chris> 01/10/01 3:34:06 <Chris> watching for break with stop at 20 7/8 <Chris> You have two choices on the stop if this trade were not to work out. <Chris> First choice is "selling at 15/16" not waiting for confirmation or <Chris> Second, waiting for all of 15/16 to be eaten and taking stop loss at 7/8. <Chris> First thoughts: <Chris> 1. Evaluate risk - if 15/16 goes, can I get out at 7/8 safely. <Chris> If yes, wait for 15/16 to get eaten, possibly hitting MM with size or ECN with size, worst case being 7/8. <Chris> If no, don't wait for too much selling at 15/16 to trigger your stop. <Chris> In this case, if 15/16 looks unattainable <Chris> immediately find someone at 7/8 to hit, ECN or MM with size. <Chris> So, now we have our stop loss defined. <Chris> (As you progress in your trading, all this can be figured out in a matter of seconds) <Chris> You bring up stock, see levels, know if stock is risky or not. <Chris> Yesterday a trader had a good question: <Chris> How do you know when volume spikes on breakouts are to be bought and when they are to be waited on. <Chris> Here is my answer: <Chris> 1. If stock shows strong volume into resistance and the volume spikes at resistance, I'm less inclined to buying this break. <Chris> Many times, at this point, the buying is exhausted and does not have the strength to carry it over to the break or <Chris> the break is weak and we are better off trading pullbacks. <Chris> 2. If stocks shows nice steady climb or a nice base and then see volume spike as resistance is being eaten, I'm more inclined to buying this break. <Chris> The difference is, interest on the break represented by the volume comes from reasonable support, not a strong move where buying may have already been exhausted in getting to the resistance level. <Chris> In this case with CMRC, #2 applies. <Chris> We have a nice steady volume with a reasonable base near 21. <Chris> The risk is lower as sizes are good and the levels are tight. <Chris> So a break of the high is a reasonable trade. <Chris> Let's go to entry: <Chris> The black circle on the candlestick chart shows entry. <Chris> The tan/orange circle on the volume bar shows volume spike. <Chris> This shows interest and that breakout is more likely, higher probability. <Chris> Again, one of our trading mantras is: <Chris> Tape reading creates higher probabilities, not certainties. <Chris> Now that we have stop loss defined and plan ready..we enter the trade. <Chris> Either we enter before the break with conviction for the break or try to enter at the break price. <Chris> If we miss break price or better <Chris> it's up to you to decide how far above breakout price we would want to buy it. <Chris> normally, I wouldn't chase a b/o play higher than 1/8 point <Chris> but in some cases, I'm willing to go higher closer to 1/4 point..rarely though. <Chris> 01/10/01 3:36:12 <Chris> volume spike here at 21 1/2 <Chris> 01/10/01 3:36:27 <Chris> scalpers should be out of CMRC soon <Chris> 01/10/01 3:36:32 <Chris> holders keep original plan <Chris> 01/10/01 3:37:24 <Chris> holders get ready to exit 1/2 above 21 1/2 <Chris> 01/10/01 3:38:30 <Chris> I'd like CMRC to hold above 21 for remaining shares <Chris> Now we have entry and we have stop plan. <Chris> Now we need exit strategy. <Chris> Tape principles ask us to watch price and volume spikes. <Chris> Scalpers exit full lots into these price/volume spikes, where first signs of resistance occur. <Chris> Holders have two options: <Chris> Sell 1/2 into this first spike and in some cases raise stop to b/e or keep full lot with original plan. <Chris> In the CMRC case, we opted to take 1/2 above 21 1/2 with 9/16 probably best exit possible. <Chris> Taking 1/2 positions assumes you own enough shares to make it worth doing so. <Chris> Trading 200 shares not as exciting to do this. <Chris> 500 shares, more reasonable <Chris> 1000 shares, absolutely I would <Chris> Now we have scalpers out of the trade, and holders possibly out 1/2. <Chris> Next we watch for pullback support. <Chris> Notice also that the price move and volume spike (as described int he workbook) usually lead us to the end of the oscillation. <Chris> This is why we exit into these areas that you see us talk about each day. <Chris> Now we have exit strategy on remaining. <Chris> 01/10/01 3:38:30 <Chris> I'd like CMRC to hold above 21 for remaining shares <Chris> In this case, I wanted to have remaining shares with stop at the low of our mini range defined before. <Chris> This could have easily failed costing us stop on remaining shares. <Chris> However, what we saw was good bid support at 21 and not much selling at all to jeopardize the stop. <Chris> This is a trying period for many. Do I exit or hold? <Chris> This will depend on you and your tolerance for executions. <Chris> I felt the size of bid and the lack of selling as it got to 21 was reaosnable to hold it. <Chris> 01/10/01 3:45:28 <Chris> CMRC holds 21 okay <Chris> 01/10/01 3:45:35 <Chris> holders keep stop at selling 21 <Chris> 01/10/01 3:45:46 <Chris> see if we get a retest of high <Chris> And so the comments are given. <Chris> Now we have to look for retest of the high and a break over that for remaining. <Chris> 01/10/01 3:48:00 <Chris> would like to see break of high here on this volume increase <Chris> 01/10/01 3:48:15 <Chris> and be ready to sell remaining shares soon <Chris> The reason I wanted to sell remaining shares into the next spike was: <Chris> 1. Nearing end of the day, almost just 10 minutes left and <Chris> 2. I'm not interested in holding it overnight. <Chris> What do we see on the chart next? :) <Chris> The stock makes a nice move near the previous high and breaks it on reasonable volume with the greatest price spike represented near 22 where we'd most certainly be out with remaining shares. <Chris> This is a fantastic illustration of volume spikes offering us clues to exit. <Chris> 01/10/01 3:50:43 <Chris> second test of 3/4 here, would like tos ee break of it <Chris> 01/10/01 3:50:46 <Chris> and take remaining profit <Chris> 01/10/01 3:51:24 <Chris> I'd be out at 7/8 or higher <Chris> 01/10/01 3:51:10 <Chris> CMRC behaved nicely <Chris> During this phase of the break of 21 5/8 <Chris> the trader had the choice to exit remaining shares into the first volume spike test near 3/4 <Chris> or watch for support on the pullback and wait for another break of 3/4 <Chris> action was such at 3/4 that selling continued to be absorbed nicely <Chris> eventually breaking the 3/4 level <Chris> and offering us a chance on the volume increase to exit our shares anywhere we wanted between 21 3/4 and 22. <Chris> This is a nice illustration of using the tape principles described in our workbook to both enter and exit on the breakout play. <Chris> And with this, I can take any questions ************************************************************* DISCLAIMER: All material herein was prepared by GST Capital Group LLC. and its affiliates (the "Company") based upon information from sources believed to be reliable. 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