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Friday, April 19, 2019

Trader Notes: Trading with the Range Bars


Basics.


The Range Bars are a different way to create and read a stock chart. Develop by Vicente Nicolellis, it exploits the volatility of the markets, making the time irrelevant in a chart, eliminating it. The main feature of this tool is, in my opinion, the great way it filters the noise, and so, avoiding from our analysis many usual false signals and whipsaws.

In a time-based chart of, for example, 10-minutes, we have a bar every 10 minutes, and so the same number of bars for one hour, and so, for all the session, regardless the volatility of the stock. In the range bars, we don't know how many bars are going to be plotted because it depends on volatility: when it's high, more bars are printed. For low-volatility, fewer bars will be print.

Three basic rules define a chart with Range Bars:
- Each range bar equals a high-low range, the specified range that we have to decide.
- Each range bar must open outside the high-low range of the previous bar.
- Each range bar must close at either its high or its low.

The best way to understand the power of this tool is by comparing, in your trading platform, a usual 1-minute time-based chart, with a range bar chart, during an hour, or better, for a complete session. Spend your time watching the range bars in action, trying with different values of ticks as range setting for each stock or instrument, viewing when you get more clear charts, with less noise, so you can draw our usual support and resistance levels, trendlines, channels, triangles, etc.

As a tip, many traders recommend, as a range setting, the Average True Range (ATR) of the stock. That is a measure of volatility, consisting of a 14-day moving average of the true range (high minus low). Finally, another advantage of watching them in action is that we can notice the "timing" of the bars: the slower the bars were print, means lower volatility. The faster they were print, the greater the stock volatility, and so, better trading opportunities.


The best way to view the goodness of a Range Bars chart (below) is by comparison with a 1-min time-chart (above). Highlighted in yellow is an aleatory lapse of a session, between 13:00 and 14:30 EST. Compare the many whipsaws in the time-chart, that can confuse a trader, versus the clean candles in the Range Bars, almost flat, with unnecessary noise. That happens every moment in a daily session. A consequence of this is that the drawing of trendlines, supports-resistances, and patterns is more clear and trustworthy in a Range Bars chart.
Also, we can verify that in the last 30 minutes of the session, the candles in the Range Bars chart increases due to more volatility in the stock, a detail that we can't check immediately in the time-based chart.





Intraday Strategy using Range Bars 


After many testings, simply by trial and error, I prefer to use the Range Bars for a day-trade, with the ATR as range setting. Choose your own timeframe in the same way, always according to your favorite instrument and trading system.

In the web, you can find some strategies for use with range bars. After analyze and test many of them, I get better results with one described by Rockwell Trading. It's simple and powerful. The strategy use range bars in conjunction with the Bohlinger Bands (BB) to identify trends, although the BB works best in ranging than in trending behavior of a stock. For uptrends, use the upper BB, and for downtrends use the lower BB. A setup parameters of 12 for moving average and 2 for the standard deviation, works fine for day-trading. For identifying strong up-down trends, we need two more popular indicators: MACD (using its standard setup with 12,26,9) and RSI (Relative Strength Indicator, set up with 7 bars, oversold 30, overbought 70).

a) You identify the ideal entry point in a strong uptrend when:
- The upper line of the BB is pointing up 45 degrees or more and range bars are touching the band as a magnet.
- Confirm the uptrend if the MACD line is above zero AND above its average line. Use this to avoid false signals. 
- The RSI is a second confirmation: in an uptrend verify is above 70 and stay there for a while. 
- Only entry when the three technical indicators match with the conditions.
- End of Trend: when upper BB starts to flat or turns around, or MACD or RSI confirmations changed. Any of them.

b) The same procedure works for strong downtrend
- The lower line of the BB, the primary indicator, is pointing down 45 degrees or more and the range bars touching the band as a magnet.
- Confirm the downtrend if MACD line is below zero AND below its average line. Use this to avoid false signals.
- The RSI is a second confirmation: in a downtrend verify is below 30 and stay there for a while.
- Only entry when the three technical indicators match with the conditions.
- End of Trend: when lower BB is flattening or turns around, or MACD or RSI confirmations changed. Any of them.


Last week, US Steel X tumbles due news of two downgrades (Credit Suisse and Bank of America) and then technically because a breakdown from its 2-year support at $18. Since that day the stock is in a clear bearish bias, the trend to use for a short-term trade.
As you can view, the chart with range bars (using the ATR as range) fulfill the conditions of the strategy at 9:00 EST: price touching the lower BB that is pointing down 45 degrees, the MACD line (blue) is below both zero and its average (red), and the RSI is below the 30 level. So, the entry point is in that candle, with a stop loss in $16.9. Usually, this strategy is quick, in this case in less than 30 minutes appear the exit signals, simultaneously, for a gain of $0.4 per share. A simple strategy.







As 

As other strategies I post in this blog, this one, being intraday, requires constant vigilance and risk management and is a good method to avoid one of the main causes of losses in stock trading: the false signals. Try it first on PaperMoney mode, because requires practice: you will be amazed how it worksTake note that there's no infallible or magic indicator or strategy: all of them give sometimes errors. 

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Monday, April 8, 2019

Breakout Stocks to Follow this Week


Celgene Corp. CELG, $95.00


CELG, one of my favorites stocks from the Health Sector XLV for this week. In news, is near its mega-merger with Bristol-Myers BMY, that could give volatility to this stock. Technically, last week broke its 3-month consolidation phase (show in the horizontal yellow channel) with a typical breakaway gap. Today closes at $95, which is also its year-resistance, so it's an important level to watch. Need to confirm this week this gap, and if so, begin its rally mode. 


Roku Inc. ROKU, $60.73



The daily chart of ROKU shows a symmetrical triangle, a classic pattern that could break up or down, it's always undefined. Probably hit by the new AppleTV+ streaming service, this stock sinks today 4.2%, breaking the lower line of the triangle and approaching the stock to its key SMA50 average and the Ichimoku cloud. I put this volatile stock in my radar, waiting for its behavior next days before shorting it.





Twitter TWTR, $34.86



As you see in its daily chart, the $35 level is a pretty resistance to overcome for TWTR. Its four previous touches and rebounds give confidence to this level, and today again touches it. With the stock over its SMA200 average, a strong overcome from this level only could means the beginning of a bull rally.



SPDR Oil & Gas Explore & Production XOP, $32.03


Not properly a stock, XOP is a popular ETF that follows oil and gas. It broke today its 3-month consolidation channel (in yellow), in which is ranging since early 2019. And did it with nice volume and signaling a probable golden-cross (SMA50 average above the SMA100 or SMA200) for next days. I'm following this week, with an eye in the EIA weekly report on Wednesday, and the other in gas low prices, waiting for a turnaround in its bear race.

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Thursday, April 4, 2019

Technical Notes of my April' Watchlist Stocks


Market Pulse.


There is a noticeable bullish sentiment from the market, supported by recent good economic data from China, the still unsecured inversion of the yield curve and the increasingly near possibility (almost confirmed by The Financial Times) of a final trade agreement between the US and China. The only doubt of the investors and traders is known if the market has already discounted this fact in its powerful recovery since January. There are only two possibilities:
a) If so, we have attended these months to a usual "buy the rumor, sell the news", and the rise with the news (the end of the Trade War) will be fleeting.
b) If not, their indices will continue advancing to new maxima, among them the expected SP500 SPX in 3,000.






April' Watchlist


Some brief technical notes and forecasts of the stocks that make up my watchlist "Main15" for April. As usual, remember, they are NOT buying suggestions, only my personal ideas.

1. Apple AAPL: undeniably strong after its recent successful event, technically the "golden cross" signal shown on Monday made it exceed the SMA200 average of its daily chart. Now, with all the signals in bull mode, it's heading quietly to its next resistance, the psychological level $200.
2. Cree CREE: yesterday broke the important 2-year uptrend channel in its weekly channel, reaching $61.75 a 5-year maximum. If it does not fall below its now support at $60, its a longwith a tight loss. Follow this stock all 2019.
3. Cognizant CTSH: broke with authority its consolidation phase, overcoming its SMA200 average. Next resistance is the psychological level $75 (coincides with its Fibonacci 61.8% of its fall since August). 
4. Facebook FB: ranging between $160-173, much uncertain news has an impact on its rise. His next resistance at $182, the 61.8% Fibonacci retracement of its fall since August.
5. Fiserv FISV: this week left the 2-month consolidation period in the range $82.5-87.5, and yesterday broke level $90 reaching all-time highs. On my watchlist since January, it's shaping up as one of my favorite stocks for 2019.
6. General Electric GE: now consolidating in the range $9.70-10.5, its recovery seems to have lost strength. Clear support in its SMA50, in $10. Probable correction.
7. Las Vegas Sands LVS: all its averages, in daily and weekly charts, are in bull zone, and  $68.50 is its next resistance, that's the 61.8% of his Fibonacci of its fall since July. In my radar.
8. Lyft LYFT: meritorious its recent IPO, but... can the valuation of this taxi app can be considered serious? It needs to find its real valuation, which I estimate maybe less than 50% of the current one in the long term, similar to cases like SNAP, APRN or FIT. There are still no options puts available, seems easy money short this.
9. Paypal PYPL: technically is unstoppable. One of the few stocks that did not suffer the market correction at the end of last year. Permanent member of my watchlist, I continue long here.
10. Roku ROKU: after recovering all of its plunge, entered in a range zone for 2 months, between $60-70. Its next resistance to watch is in its all-time high in $77.57. Careful with its huge volatility.
11. Snapchat SNAP: as I remark always, is a stock only for short-term speculation, never for a long investing. Now in a powerful recovery since its confirmed the MACD bull divergence mentioned here. It's approaching its real valuation, I estimate in the range $12-13. 
12. Atlassian TEAM: another stock winner, in my watchlist since January. I'm long here since it broke the psychological $100 level. Now is in all-time highs ($114) and could correct soon due to logical exhaustion: $120 seems an interesting level to watch.
13. Twitter TWTR: continues in its range zone between $30-35. In these moments it's in the upper limit, in an important resistance that can overcome soon, sending its price to its next goal: the psychological level $40. In my radar.
14. Ubiquiti UBNT: another of my favorite stocks. It doesn't confirm the MACD bear divergence indicated here (its EMA13 finally never pointed down), so it turned around and kept advancing to all-time highs. Now I'm long, with a tight stop, holding until its earnings report, always a dangerous event due its a very volatile stock.
15. US Steel X: I had the alert for a buy entry in $18, but the stock finally didn't arrive, and has been recovering upwards. Now in $21, the base of the Ichimoku cloud, is its next resistance. Interesting stock if it increases volume because it usually takes off strongly.



Images were taken on April 3rd, 20:44 EST


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Tuesday, March 26, 2019

Watchlist Update: CREE, CTSH, UBNT, X


Cree Inc. CREE, $55.27


Technical analysis is a great weapon for traders when charts are well developed. CREE, as you know, one of my favorite stocks since mid-2018, is likely in a technical correction. The 2-year uptrend channel in its weekly chart, show the stock touching the upper line, and beginning a pullback probably towards the "value zone" (black lines). MACD and Stochastic (not shown) confirm some exhaustion of the rally. And also the Elder's Impulse System changes from green to yellow in the two last candles indicate a pause in the bullish phase. Friday 22th, during the market sell-off, I closed my position and wait for a further long entry, because the stock maintains its good fundamentals, and this good company has road for growth in the long-term. 


Cognizant Technology Corp. CTSH, $71.09


Since January I'm following this stock in my watchlist, due to its low valuation with nice numbers in growth and earnings in 2018. After a great initial month and with an Earnings Report beating the market, the CTSH stock couldn't overcome its SMA200 average and entered in a consolidating period that stills two months, preparing for a breakout or a breakaway gap that didn't happen yet. As the channel is tight, is difficult to predict in which direction it will explode. Just put in the radar, doing jealous surveillance to its price and volume behavior.





Ubiquiti Networks UBNT, $144.20



Since my last post, UBNT soared after Wall Street likes its last Earning Report. The continuation gap moved the stock to $150 levels, an amazing 50% performance YTD. Now an important figure appears in its daily chart, a double-top, a classic technical sign of turn-down in a stock rallying. Also reinforced with a clear MACD bear divergence, that isn't complete, because its EMA13 average (the black line) is still flat. This simple indicator helps me to avoid many false divergences that usually appear in MACD lines and histogram. I'm anxious to confirm this because UBNT corrections are usually very deep, and so, a good opportunity for shorting it. 



US Steel Corp. X, $19.22


A good company that is directly suffering the effects of the Trade War, since its beginnings in early 2018. The stock fall is heavy, near 60% from its peak, breaking all main simple averages and Fibonacci retracements.  X is the typical stock in which news mainly influence its behavior, and the only great news that will explode this stock toward the stars is a deal US-China: so it's unpredictable, only Trump knows...
I'm watching the $18 level as a good technical entry point, due to its behavior in the last two years when approaches this value. I placed the alert there and I will wait. 

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