Textbook Trading – Notes and Review of Chapter 7 – Morning Emotion & Faders by @investorslive

Table of contents:

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Summary:

Looked forward to re-watching this chapter and was happy with what I found. These types of setups are my bread and butter, though I can surely get much better at them.. Today (7/27/2015) was a perfect example on $ITEK, sure I traded it for +0.50 a share but I botched it royally by not recognizing lower highers and holding into fading actions. It was a thin and jumpy stock so not a perfect example but the whole time I watched this chapter I was face palming over my trade on $ITEK.

intro

This is a great chapter for the beginning or moderate short seller. The biggest benefit to this type of setup is it gives you a solid and easily recognizable place to set risk. The scary thing about parabolic shorts is it can be very hard for the new trader with limited experience to stick to his stops, because other than whole numbers there is really no true spot to pick. The beauty of the big spikes/fades is you can take that HOD level or the previous day HOD as a stop. Then even if the trade goes against you it’s easy even with limited discipline to say “Listen it’s bumping the HOD this thing is gonna break out if I don’t cover now.”

lowerhigh

Lots of solid chart examples in this chapter, with great commentary. It is important to see these charts in order to recognize the grinding type action. No doubt one of my biggest issues is overlooking higher lows and failure to break down. So many including for sure myself add into higher lows, this is a TERRIBLE idea. These setups work most of the time, but if you add into ABCD or grinding you will ALWAYS and I mean ALWAYS get squeezed out by a spike then 9 times of 10 the stock will still fade. Where had you recognized the stock was still not ready to sell off you would have kept your size manageable and added into a winner instead.

review

This setup is often referred to as the “HOD rejection” as well. And in my opinion is the most reliable setup there is. But you need to focus only on BIG charts and stay away from stocks that are strong for a good reason. Like any short you need to be a sniper and pick only the best setups. These comes with experience but I think Nate does a solid job in this chapter explaining how to recognize these setups as well and most important how to set risk and stick to stops.

Summary

Taking advantage of morning emotion – short
     -Scalp
     -Prior day high as stop  – set risk
     -pops are met with selling
     -take quick gains, especially if ABCD sets up
Failed follow through momentum
     -big morning move, then drop and no continuation
     -Red to green good place to set risk
     -HOD set risk
     -Big charts/overextended
     -Good use of support and resistance levels
     -another good use of prior day, especially late in the day high as risk
     -lower highs – continue fade
     -higher lows – exit
     -ABCD – cutoff or take profits
Overextend fader – lower highs – late day fader
     -momentum shift
     -backside move – high R/R
     -pops become entries
Late day fade – lower high
     –Has place to set risk vs parabolic trade. – defined by support/resistance levels
     -wait for top to be set – morning emotion
     -Look for base – support levels- wait for crack for entry with lower highs
     -capitalize on profit taking into close
     -Patience to wait for fading. Ignore while it grinds
     -These can be solid swings/multidays
What does “grinding” look like – stops
     -do not add add add to a loser, only to a winner
     -good easy and “slow” what to pick exit – easy to not get trapped if you stick to it
     -Have a plan – but always have a “MONEY” stop loss – max pain
     –If you are wrong let yourself be wrong
HOD REJECT model

3 thoughts on “Textbook Trading – Notes and Review of Chapter 7 – Morning Emotion & Faders by @investorslive”

  1. Hey Bowen, just stumbled on your blog and have 3-5 brief questions for you about short selling, what is the best place to contact you, email or twitter? Thanks.

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