ERJ March 19th 2010

ERJ (Embraer) gapped up with volume on Friday Morning.  
Following Tom C's entry rules from the Trader X blog  on opening gap plays - produced a profitable trade. Check it out.

Here are my business rules to help capture potential profitable targets:
- 9:35AM East. Scan for opening gaps using the following parameters. I use FinViz in real time (you must subscribe to the Elite option):


Scan Parameters

• Minimum daily volume average >500k shares/day
• Current volumes 3x as normal average daily range.
• Price above $5
• Gap up +1% 

- 9:35-9:50 Once this list is produced (I typically flip through 15-20 contenders) i will look for a first Solid white Candle and 2 consolidation candles (hammers and/or no wick above) above the top half of the first Marubozu.  
- 9:55-10:00  By that time i usually have 3-4 candidates to trade.
-10:00-   I will look for a clean break of the candle that will close a point above the opening range.
- Other considerations:  I use 10 minutes periods for scanning ; rely on the 8 Period EMA as guide to a clean trend.  Plot Fibonacci pullback/expansion between first pivot of day and previous day low. Check out this link for reference.  
- Exit rules: i will usually use two rules:  

1.  I will use the 5 period RSI to guide an exit by getting selling once the indicator crosses below 70 or if i notice a big divergence between highs.
2. The low of a candle violates the last low from the previous candle that marked a high from the day.

Trading the Opening Range

After going back to reading classic posts from TraderX -Wall Street Warrior and Maoxian (cant wait for his site to get back up a running) - i am  focusing my trading on the opening range (the first 30 minutes from the opening bell).

Couple of things that i am looking for (15 minutes Charts):

1- High Gap from previous day close (+2%)
2- Blue sky above
3- 2x usual volume
4- No trading before 10:00
5- Looking for consolidation bars

2010 Trading Resolutions

In the new year i would like to accomplish the following:

1. Reduce total number of trades.  In December - i had 116 registered trades (yikes). Looking back i realize that i spent way too much time in initiating entries and not enough managing actual trades.
   
2. Allocate more time on managing open positions -meaning allowing more time for movement to unfold when positive and cut loose of  losing trades at the right time.
   
3. Re-visit trading timeframes - right now most of my decisions are made based on the 10 minutes / 3-4 timeframe.  I am using the daily / 6 months view to see the bigger picture and the 30 minutes / 5 days for support and resistance areas.  Reasoning behind looking at a different timeframe is to minimize risk and increase win %. Right now i would say that my win % is approx 50% but cant say that i am making profits at the end of the month
4. Concentrate on a few good set ups and become a master at trading them on a consistent (profitable basis)