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KIDLAT CHRONICLES

Vol. 1 | May 1, 2016

Part 1: Runner-runners - Profiting From Upward Momentum

$DAVIN became a runner-runner for 3 consecutive days after breaking out from it’s previous resistance.

Whenever I want to enter a highly volatile stock but wasn’t able to acquire position before the big move, there’s one strategy that I always use – momentum trading. Momentum trading, in essence, is all about riding strong movements – whether up or down. But since we don’t have short selling here in our local bourse yet, we usually refer to momentum trading as simply riding strong upward moves. As far as holding period is concerned, momentum trading is often characterized by a “Zero (intraday) to 5 days” timeframe, on average. And the key to successful momentum trading is to get in when momentum is picking up and get out when it is dying down. It’s profiting from the stock while it’s green and selling it during (or before) red days. But of course that’s easier said than done. What’s the difference between momentum and swing trading? Swing trading has a longer time frame than momentum trading. Usually 2-4 weeks. And includes corrections and consolidations in between. If you’re the type of trader who doesn’t want to partake during these price breathers, then you’re a momentum trader. What is a runner-runner? A runner-runner is simply a stock that makes successive green (or red) candles after breaking out (or down) from a significant resistance (or support). In short, multiple consecutive green (or red) candles. This is a clear indication that the stock is under the influence of a strong buying (or selling) pressure.

Trade #1: Momentum Continuation on a Runner-runner

March 3 – 4, 2016. 1 trading day hold. 34.67% gain.

1. Plotted recent Darvas resistance at 3.16. 2. Price breaks out clearly from the plotted resistance and closed strong at 3.47 [+19.7%]. 3. Momentum continued. Bought at the CLOSE at 4.15 [+19.6%]. “Wait a second! Isn’t the stock already too high? The breakout candle registered +19.7%. And today, another +19.6%. Aren’t you scared that it’s gonna go down tomorrow already?” Here’s the thing, when momentum kicks in especially on runner-runners, it’s hard to stop. Ask Sir Newton. Besides, this is just going to be a quick trade right? And to protect us from any catastrophe, we’re putting tight cutloss points of course. 4. Sold intraday at 5.65 with +34.67% profit. Candle closed with wick at 5.36 [+29.2%].

Trade #2: Momentum Continuation on a Runner-runner

March 4 – 7, 2016. 1 trading day (weekend) hold. 17.92% gain.

1. Plotted All-Time High (ATH) resistance. 2. Price breaks out from ATH resistance qualifying this stock for Borg. Bought at the CLOSE at 5.36 [+29.2%]. 3. Sold intraday at 6.39 with 17.92% profit. Candle closed at 6.33 [+18.10%]. My strategy for these two trades were simple: a. Buy at the CLOSE with significant postion size if the candle is green. Since these were runner-runner plays, I’m buying at the close for possible upward momentum continuation the next day. If I will exit at 5% gain, that’s okay coz I have significant position size. If the market decides to give me more than 5%, much better. b. Sell intraday the next day if I see weakness in momentum. Since my entries were already classified as high risk, my core exit strategy was to get out as soon as I see weakness in momentum. It may be a Darvas or an MA support breakdown. Or if profit objective (%) was already hit. This strategy works well if you can’t monitor a notorious stock by the minute throughout the day. I was swamped with mid-day appointments during the two trades above. My objective was to sell in the morning session before I head to my meetings. And in the afternoon, I just checked the closing candle and open a position again if it matches my buying criteria.

Part 2: Bounce Plays - Profiting From Downward Momentum When trading downward momentums, the first play that comes to mind is the Bounce Play. The core premise of this setup is simple: There is no such thing as a straight drop. If the stock is falling there will be rebounds along the way. What we want is to profit from those rebounds. But take note that it’s far more different from trading upward momentums in a sense that you’re rooting for a falling stock to recover after finding temporary support. In other words, you’re trading against the trend. This is more risky of course coz the bearish bias is so strong. But if executed well, it can give you enough profits in a short period of time. My key ingredient to trading bounce plays is this: Get in and get out early and don’t hope for skyrocketing profits. Don’t be blinded by the Illusion of Bagger. Always align your expectations with the play at hand. If the bounce is over just accept it, let go of your position, and move on to the next trade. Trade #3: Intraday Reflexive Bounce Play

March 8, 2016. Intraday hold. +8.24% gain.

1. $DAVIN hit resistance at 6.50. 2. Traders started to sell their positions causing the stock to fall tremendously. Time to look at the minute chart!

1. Plotted major darvas support with 100-MA confluence. One very critical part of any bounce play is the previous breakdown. Before excessive selling pressure comes in, price needs to breakdown from a support first. Always know where the price came from – or its Point of Origin. Why is this important? The point of origin will dictate if the drop is going to have a strong downward momentum or not. Strong drops call for strong rebounds. If it came from a major support breakdown like the 100-MA or a long sideways action then expect a violent bounce when it finds temporary support. You’ll easily see if the trade is worth the squeeze or not. If the drop lacks strong downward momentum (or high volatility candles), it’s not worth to catch. If the potential bounce won’t be that high for you to gain enough profit from it, then why take the risk? I want to stress it again, bounce plays is a contrarian setup. You are fighting against the prevailing trend - which is downwards. This violates one of the golden rules in trading: The trend is your friend. The chance of losing is greater than the chance of winning. So be extra careful. 2. Price broke down from identified support. Strong downward momentum ensued. 3. Plotted parallel darvas as potential temporary support for the bounce. 4. Price bounced at the identified parallel darvas with an oversold RSI. Objective was to profit from the bounce while the stock forms the right shoulder of a Head and Shoulders pattern. Opened position intraday with an AEP of 5.22. 5. 100-MA and RSI-70 resisted the price. Sold intraday at 5.70 with +8.24% profit.

Trade #4: Regular Bounce Play

March 9 – 11, 2016. 2 trading days hold.+ 17.63% gain.

1. Downward momentum from previous candle continued causing price to drop intraday. It recovered as the day progressed. Bought at the CLOSE at 5.55 [+8.2%] after successfully creating a bullish reversal candle. Regular Bounce plays normally have a 3-day timeframe: (a) Day 1 - The actual bounce, (b) Day 2 – The Momentum Continuation and, (c) Day 3 – The Resistance Hit. So, if this is only Day 1 of the bounce, basic strategy dictates to hold until Day 3. 2. RSI-70 acted as support for the bounce. 3. Upward momentum continued. HOLD. 4. Sold on Day 3 in the morning session at 6.60 with +17.63% profit. Candle closed red again at 5.71 [-7.9%]. It also showed a failed breakout attempt from the recent high. A clear indication that the bounce play is already over.

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