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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: BoNg-N-BoNg who wrote (1255)	10/15/1998 2:56:00 PM
From: LastShadow	Read Replies (2) \| Respond to of 43080

Gap and Trendline Example: SEBL Someone mentioned SEBL yesterday and I went out and checked the chart. It is a great example of both trendlining and the Full Gap Buy, Modified Gap Sell (twice) and Modified Gap Buy - and all within the last 5 days. So if you are trying to learn this method, go print out that chart for 10/8 though yesterday. BTW, I wasn't able to be online all morning since I had a lovely 5 hour meeting, so please forgive if I am late for any other responses. On Thursday, 10/8, SEBL opened at 17 and in the first hour of trading went between that and 16.875. Setting a Modified Gap Short (the open was the High for the first hour, so a Modified Gap Up signal is not used) at a tick below the low would have been filled at 16.75 around 11. It based at 15.5 and the uptick at 2 pm would have been the buy to cover (BTC) signal at 15.625 for 1.125 points (or 0.875 if you assume slippage both ways - I will use that convention for this example, although from looking at the chart it doesn't appear that the uptick slippage would have been encountered). Given the thin trading after that one reasonably wouldn't have then gone long, so I will ignore that possible gain. On Friday morning 10/9, SEBL gapped open more than 0.50 above the previous day's high, so therefore is played as a Full Gap Up. The low of 17.25 in the first hour meant a 17.125 Short signal wouldn't. Have been filled, but an 18.25 Buy signal would have about 1 pm. Selling at close (although one could have reasonably held overnight) would have filled at 20 for 1.5 points (or 19.375 at worst case slippage for 1.125 points). On Monday 10/12, we again have a Modified Gap Open as the open is above the close but not above the high. Setting a Buy stop is not indicated at the Modified level as the price stays withing a narrow trading band - it goes horizontal so to speak. But to be completely hones, if we assume one does enter at the midpoint between the high and the open, one would go long at 20.375 and get protectively stopped out at the same amount (remember on a modified gap the stops are set at entry after upticking ) Now, assuming slippage as worst case, you would lost about 0.50 max at this point.. The Short signal comes shortly after that at 19.875 (19.75 worst case slippage) down to a 17.50 close, although again, one would reasonably held overnight due to the large number of trades and substantial volume. However, assuming one buys to cover at close is a profit of 2.375 points (or 2.125 assuming maximum slippage). On Tuesday, 10/13, we set all the triggers for a modified gap down, get filled at 17 (will assume 16.875) and buy to cover when the stock goes horizontal at 16.625 for a lousy quarter - but hey, it takes care of part of the 50 cent loss from early the day before. On Wednesday, 10/14, it is again a Modified gap up and we set Short triggers at the midpoint of the open to low range (the open was the low, so that is ignored) and at the midpoint of the open and high, which is 17.25. However, in this case, one watching the tick is unsure if the stock will rebound, so they would rationally set the long stop higher so I will say it was at 17.875 (because this is a definite upswing in action after it clears 17.5 and you wouldn't have caught it at that price - I am trying to give worst case scenarios here…). You would then exit before close around 20.125 (with slippage) for 2.25 points. So the total is (using worst case numbers) is = 1.125 + 1.50 - .50 + 2.125 + .25 +2.25 = 6.75 Based on an initial Short of 16.75, that is about 44.7% profit. So for 300 shares = $5075, one makes about $2025 before commissions. If you are a little quicker, hold overnight or pay attention to volume and number of trades on Days its peaking or valleying like 10/12 or 10/14, you could do quite a bit better. I appreciate that this is a prefect example. But then, if you only made the long plays you would have made 17.8% (=$3.25/$18.25).. If you want, subtract $180 for commissions, but you get the point. Now try this: If that is too complex and doing the math gives you a headache, try taking a ruler and just trendlining (connect lows on the way up and highs on the way down) the 5 day chart and hold your position at close overnight. We have a long entry signalled at 16 on 10/8, and Sell and Short signal at 20 on 10/12 (4 points), and Buy to Cover and Long entry at 16.625 midday on 10/13 (3.375 points) ending at 20.75 close Wednesday (4.125 points) for a total of 11.50 points on a 16.00 stock for 71.875%, or $3450 profit on an initial buy of 300 shares at $4800. I didn't do slippage or commissions on that one, but hey, if you want, take a whole buck off and make it a 65.6% return. lastshadow