Hey what’s up guys? Well a really phenomenal day of trading today. We were in lockup over $10,000 on just an incredible setup here on one of our stocks on the watch list this morning. I really want to take some time and break this trade down for you guys. It’s a really great example of how to scale your position properly, which I can’t tell you how important that is when it’s time to become aggressive, to extract the most out of the market. Let’s take some time and break down this huge trade we had today in today’s recap.
All right, good afternoon guys. Time for a recap of today’s trade. It was a very good day. It’s been a long time coming in the past few weeks to see a day like this. Locking up just over $10,000 on this trade that we had this morning on CSX. It’s been a slow market, so while today appears to be a really great day worth of profits, it’s been very slow the past several weeks. A win like this takes care of that time that it was slow, and that’s the whole premise behind this strategy is that just become aggressive when you setup aligns or when everything comes into alignment, because those are the trades that you can really take advantage of and press into and extract the most profit. Really good example today on this CSX and I want to take some time to break it down and show you what about it aligned so well, including the market and how we’re able to extract this much profit in the move that we had, and it’s definitely has to do with adding back to your trade, pressing into the move rather than just taking profits as you get the initial move.
Let’s take a few minutes and we’ll break this down as to how we were able to capture this trade. CSX, earnings play this morning, had an earnings release and it was moving lower, and that’s definitely a catalyst that I like to pay close attention to because they tend to be the type of catalyst that are responsible for the most fluid moves in a stock. We definitely want to pay attention to the stocks that have a big move after an earnings report because they’re likely to see some tradable action if the technicals line up, and we definitely had that today on CSX.
CSX also historically has been a very good trader. Doing this a long time, siting in front of screens and watching stocks trade, you start to become familiar with the behavior of specific stocks, and you’ll remember trades that you had on them. Could be a loss because it was super volatile, you’ll never touch that stock again, or it could be one that trades really well with a lot of volume and is very predictable so you’re likely to keep a closer eye on that stock. CSX is definitely one of them. One of the last trades I had on CSX or actually I should say one of my bigger winners that I’ve had was actually on CSX I think at the end of 2017, which I’ll show you guys. Definitely a stock that trades very well, usually brings a lot of volume, and definitely can put in big range. When I saw CSX on the scans this morning and I saw that we were moving down towards the 200 day moving average and we had an earnings release, I definitely was looking forward to what we had in store for the day because again, I knew that CSX typically offers some decent potential as long as the technicals are in alignment.
That said, I want to show you the daily on CSX and just quickly touch on the last big trade I had on this name, which comes from a big macro channel break. You can see this macro channel over the course of about nine years or so, eight years or so and you can see that once you break out of these macro channels you get a pretty substantial move. Look what happens here just quickly. Look what happens here. Once you finally do break outside of this long-term macro channel. This day was an earnings day and we saw CSX gapping significantly higher, and it happened to be gapping above the macro trend line. This looked very interesting to me because again, you’re breaking out of a channel and it’s a macro channel. This is a really good sign that you’ll probably see some continuation.
What happened on this is as soon as the market opened, it came back and retested these trend lines or this trend line right here virtually to the penny, and as soon as that held and the volume came in we got long and had a really, really, a really great trade on this to the long side. CSX it shows you the power of proper technical analysis and how much you can actually depend on it if you’re doing it correct and today’s no different. Today is no different on CSX. You can see today we were breaking down through the 200 day moving average. Now one thing I will say is that this is a stock in a pretty significant uptrend, it’s very strong over the long-term, so a lot of times what happens when you get a pullback to these major moving averages, is you see dip buyers come in. I’m very cautious about trying to anticipate these types moves, I want to see confirmed breaks because then you’ll know that the move is probably going to be legitimate rather than just a test and then the dip buyers come in to buy this thing for another push higher.
On CSX today, what I liked about it is we had this pivot in through $73.19 or so, which was this last relative low pivot. We were getting below that, which was good because we were taking out the range, but then we had the 200 day moving average here. Now being that these levels were so close together, I just want to wait until that 200 moving average broke because if that broke we had a potential pocket down towards the $67.50 level. Really not much in the way of support there until you get to the next significant level, which was going to be around $67.50. Again, I want to see a confirmed break of the 200 on this, and then look to take that short sided trade if that were actually to occur.
Let’s dial in to the open here and use the fast timeframe and talk a little bit about my entry and why I actually took it at that point and I didn’t take it earlier. I watched the fast timeframe for about the first hour of the day, depending on the action, especially when I take an entry. You can see here on CSX that out of the open we had a quick sell, and again not going to anticipate a move into the 200 day because that’s very dangerous. Pops back up, starts to move back lower, but again test the 200 day, pops back up, just moving relatively flat, relatively sideways, slightly lower, but there’s one key thing here that was occurring over this time and that was the lower highs. You got your reactionary high here, this is the next relative pivot, which is a lower high. Next relative pivot, lower high. Next relative pivot, lower high.
Basically what’s occurring here is a bear flag for technical purposes. This is essentially a bear flag above the 200 day. Now being that we had that, we also had something that was very significant in the market. If we look at the SPY, we talked about this this morning specifically, but this setup coming into today, the last several days I’ve been really trying to drive this home because it’s a very important concept to grasp on the way that the market gaps and how it responds to those gaps and how to predict the direction. For those of you that are in my large gap room you’re well aware of it. For those of you that are not I encourage you to stop by and you’ll definitely learn there key factors and price action that’ll help you predict the moves.
We had a big level here at this 299.60. Why was it a big level? Well because we had some daily levels on this thing that correlated. You can see you have a major ascending support line here that correlated with this 299.60 pivot. What that means is a point of confluence with two pretty significant levels. It was basically a recent high that was retested and moved, and you have an ascending support line and you have an ascending resistance line that was all at the same spot. If those broke you move into a pocket that’s potentially down towards 294.50, if not the 20 day first but still that alone is a huge move and could be something that could definitely spark some movement in stocks. If this was starting to break I would look a lot more closely at stocks on the short side.
What was happening on the SPY is out of the open, right. Here’s the five minute SPY. Out of the open you can see that you were just testing the level. We’re trying to hold it, then you get this break. What do we want to see to confirm that this move is going to be real and it’s going to be a legitimate break of the level? You want to see a retest and fail, which over the next 10 or 15 minutes you can see happens. Retest fail, retest fail, now you start to resolve. Look at the time you start to resolve, it’s roughly 10:05, a little bit later 10:05, 10:10 am, and that’s where you actually start to pull away from the level and that’s the point in time where we start to see the market accelerate.
Knowing that, between 10:05 and 10:10, look at what CSX was doing. Again, I was watching this very, very closely because I knew it had big potential if we had everything come into alignment. Again, remember we talked about quick sell, quick pop, lower highs, but look what starts to happen around 10:05. We start to approach this 200 day moving average and I’m thinking, “Okay, now the market is starting to pull away from the level to moving into this pocket, volume is picking up. The move is accelerating, there’s a lot of room for this market to move here and sell if it continues.” CSX coming back to the 200 day I said, “All right, I’m going to take a trade on this.” I’m short at $72.30. We start to break through. I added some to this right away and we cracked through $72. I covered half of that position. I took two adds there. The first entry added into it as it started to go, cut out half of that as we cracked through $72 and covered $71.90. Then we popped back up, quick retest and fail, I added back. I added back, covered as we cracked through the lows down here through $71.80s and 70s.
Quick spike back up. I saw it was a lower high, turned right back around, I added back again. Added back a big block again. Took out the lows, covered half of my outstanding position through $71.40s and 50s, and then held the balance to see… I really wanted to get down towards $70, that was the target. We started to look pretty good here, but what I had decided to do as we broke through this low right here, we started to dance around $71. I said, “You know what, this is a big day I have on my hands here and it’s been a while since we’ve had a pretty decent trade.” I actually cut loose the entire balance, I covered everything at $71.10 and I was done on the trade for the day.
Now obviously this thing went on to move down towards roughly $70. It actually did get down pretty close to the initial target. However, here’s something you have to understand. If I were to take one position on this stock and let it move to the potential target, I would have to sit here through this all the way down here, which is no problem, it can definitely be done. But what if that never gets there? What I choose to do is that I’ll take a trade and when I add back to a trade it’s basically adding back the same thing I took off, so I’m adding back half, I’m taking off half, adding back, taking off. Essentially what I’m doing there is taking a whole new trade. Basically what’s happening is that in the same amount of time, so if I do this, I can make the same amount in this sort of move in through here like this, as opposed to having to wait all through this type of move.
Basically half the move I can make the same amount if I’m sizing in and scaling properly. What does this accomplish? Well less time in the market, which is less exposure. It also allows you to capture profits that may not actually come. If you were to sit in this, this could be where it bottomed out right here at $71 where I took the final trade off. It could have bottomed out here and then that initial trade that I took I would have never captured these profits. Well sometimes you will like today you would have, but if I can get in and out consistently in a relatively shorter period of time, then I will be much more consistent in taking bigger profits out of the market in a shorter period of time.
All I’m trying to do is take multiple trades or multiple adds to my position in a short period of time to accomplish what would be the same result if I had sat here for another hour or two. Just an approach that I have that we’re definitely going to see a move on the stock but how far is it going to be? If I can continue to add back in heavy size and we have good price action and things are in alignment, then I might as well be done as soon as possible with the trade rather than sit here and monitor it all day. Again, pressing into a trade, adding into a trade as it moves in your direction, is extremely important and it’s extremely helpful to understand the concept. While initially it may be counterintuitive, that’s what makes it difficult. When I say counterintuitive I mean that adding into a trade as its going for you, that doesn’t seem right.
You’re probably taught that the stocks move in your direction, take profits. That’s understandable. We’re human, we see profit on our screen we want it. We know how hard it is to get it, we want to lock it up. However, in these large cap stocks they have big potential to move, so if you can take a position and add into the trade as it’s moving, you will start to see some much better profits, you’ll start to magnify your wins by quite a bit and you’ll start to see your trading really improve. Just got to know the right context to do it in and today it just really couldn’t have been a better example of how to actually manage a position and add into a trade as it’s moving for you really to magnify those profits.
Any event, that was CSX guys. I hope most of you were able to catch a little bit of a win on this. Definitely a really nice trade, setup really well, and we’re doing really well come here at the end of the week. We’ll look for another trade tomorrow, so I’ll see everyone back here first thing tomorrow morning.
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