The 10/60 cross (how indicators work)

All indicators are themselves lagging indicators, meaning they are derivatives of price and volume. The 10/60 cross is useful in many respects because it smoothes out the data coming from the chart and thus can provide some perspective about what is happening to the stock. Remember the indicator will be much slower than the actual movement of the stock price, so you can be aided by it or hindered by it depending on the circumstance. Let's look at the ABK chart recently:

The 10/60 cross into the entry was decent because the gap up and retracement provided a confusing signal but the following run up confirmed the move nicely. The 10/60 cross kept you out of several potential sells on the retrace. However a sell on the retrace below 4.00 was not bad move in this situation since the exit signal of the 10/60 cross was far less than the ideal sell price and the sell should have been triggered on something more like a 4.00 fail than the 10/60 cross below at 3.85 (that would have likely been filled at 3.65).

This underscores the point that the 10/60 cross is only a guideline and cannot be relied upon for precipitous moves in the opposite direction but can be generally relied upon to filter out noise moving in the direction of the trendline.

Here are two examples of my SIL entry short:

I have already mentioned my entry into SIL short and you can see its relation to the 10/60 cross. Waiting for the cross here would cost you a big move in your direction.

My 2nd entry into SIL short was in the 2.4's from this chart:

Again, ahead of the indicators but they are useful for smoothing out the data, just be aware that you are literally 'behind the curve' when using these.

The best shorts

The best shorts are from the multiday up charts. Am I just now coming to the conclusions that Sykes has already found? Possibly. The difference between me and Sykes is that I think there are good trades to be made every day, and also day trading the high day rangers. However my recent stats from the Muddy picks as well as my own stats on 4 and 5 day run ups seems to lead to the same conclusion: wait for the best opportunities. 

Greed kills

When should you exit a profitable trade? This is a good problem to have but I see many people including good traders that I know have genuine angst when they lose profit on a winning position. Apparently it is just as painful to lose profit as to incur a loss, it feels the same so we will leave it to the professional psychologists to analyze why that is, I will concentrate on the charts and what you and I should do to not find ourselves in this position.

For shorts of 'junker' stocks like the ones we like to play, I find that the safest position is to take it 2-3 days down, and 4 days is a bonus. Do not try to take it down more than 2-4 days unless you are prepared to hold it for a longer term, which may turn out to be a successful long term strategy but goes against my personal strategy of making the most out of the trade and moving on. Unless you have excess capital to apportion to the position, don't try to ride these positions for a week or more unless you are prepared for the long term.

Let's look at a few winning charts from the past few months.

Clearly, the play on these shorts is hold for several days but at some point holding too long is a detriment- some of these clearly rebound on the 3rd, 4th, or 5th day- so how do you tell the difference between a junker that spikes up in the morning and crashes later versus one that will genuinely spike up and run? 

Answer: you don't, unless you are very familiar with the stock, and that is still no guarantee. Hold for 2-4 days maximum and don't get caught in the reversal. For WRSP, although lately holding the short is a good position, earlier in the year closing after 3 days down was the perfect play. Closing after 3 days down would still give you most of the gains here without the risk of a run up.

The reason I bring this up is because of SIL, holding for 5 days was an incredible play, but at that point should have been recognized as being beyond the bounds of any reasonable trade, look at the chart and see that anyone in their right mind should have closed out at 1.65 after 5 days down, here is a case of epic greed taking hold, anyone still holding is waiting to get back to where they were after 5 days down, just don't be greedy and you would have already moved on to the next play, ha.

Upcoming posts this weekend

Greed kills...

Best short opportunities

My thoughts on the 10/60 cross 

Watches Fri. Oct 3

SPAR NXTM RZ 

Still watching SIL.... may jump back in ("I don't know how to quit you")

Also, main reason for post is that I'm testing some options strategies to be played simultaneously along with shorting the stocks... right now NXTM 5 puts at .90... will update with results

**UPDATE

nice drop on NXTM....

as expected, the 5 strike puts went from .90 to 1.45 on the drop (a 60% gain!) but the spread is ridiculous, prohibitively so. I knew this was too easy.

Watches Thurs Oct. 2

CYPB RZ CALC BRCO EPIC UCBH

The first ones are continuation watches from darkside, remember to keep watching

EPIC hasn't held 9 since its big gap down in March... right now at 8.92

UCBH can't make 3 white candles in a row of late... guess how many white candles it has now

SIL update

Closed SIL today as I mentioned yesterday, got out in 1.80's, looks like a good exit on my part. If SIL runs again tomorrow (I predict gap up and another run towards $3) then will look to reshort. I'm also considering an options play here. Unlike most of the junkers we short, SIL has options available since it trades on AMEX. Will fill in the details if it looks interesting.