Walking the Bollinger Bands (Part 1)

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It’s my favorite path – the Bollinger Bands. It is quite accurate in catching reversals assuming the market is orderly (no shocks).

It’s like driving on a highway: right lane, passing lane, turn… When market is relatively quiet, the path is not chaotic and you can stay in it. Real action starts when unexpected happens! The less expected the more fun.

Is there a way to prepare as a trader for “unexpected”? I think there is, however limited. Hikers that undertake long trips in wilderness train in reading maps, natural markers, sky, weather etc. Even when they wander off a path they would be prepared to look for an alternate route.

What is there for traders? Charts, emotional level at CNBC and alike, international news, Fed talk and more – observation of the interdependencies between the market and those, with time, helps with faster decision making while trading.

This is where I find the Bollinger Bands helping define the path while I still keep my eyes open on emotions, news etc.

Bollinger Bands

Let’s look at this hourly chart:

A, B, C, D – no real action – just slow movement, no trade for me

E – support level from the daily chart

F – some action outside of Bollinger Band! (a possible next step would be pull into the BB and move up or a second leg down)

G – drop below the support from the daily chart and finding support in the Bollinger Band – that’s a promise of a bounce to test the resistance (previous support level from daily chart – high probability)

H – the test! And stuck at the upper BB

How to know the entry/exit? Additional indicators may help.

You may ask what chart is that. That was XME last 10 days hourly chart

In my next blog I will add one more indicator and revisit the “walk”.

Eva

Invested Central Chart of the Day: ABMD

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ABMD is an $825.7 million healthcare company that provides medical devices in circulatory support and continuum of care in heart recovery to acute heart failure patients. ABMD has excellent volume trends and recently needed some relief from very overbought levels. There was also a long-term negative divergence that had printed and that led to a subsequent 50 day SMA test and a MACD “reset” at the centerline. The selling over the past four or five sessions helped to relieve the overbought issue and now sets up ABMD to be in a much more favorable reward to risk trade. We like entry at the current price and again at $21.15. We’d keep a tight closing stop beneath $20.98 and our initial target would be $24.18.

You should consider these educational charts and analysis for possible short-term trades only. We are not registered investment advisors and the following trade setups should not be viewed as investment advice. Accordingly, please check with your financial advisor before deciding to buy or sell any of these investment securities. Read our full Disclaimer below.

Because we do not recommend holding a stock into its earnings report, please check all earnings dates on Charts of the Day stocks before making a decision on whether to consider a trade.

Anatomy of a Trade: Jinkosolar Holding Co

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Anatomy of a Trade: Jinkosolar Holding Co

Date Provided to Members: January 29, 2012

Service: marketJOURNAL

Entry: $6.55 (average)

Target: $9.75

Profit (Loss): $3.20 or 48.85%

Days Held: 10

Comments: Here is what we had to say on Sunday night, January 29nd, as delivered in our marketJOURNAL stocks that we provided to our Gold and Diamond members for Monday, January 30th:

“JKS may require some patience and it should only be considered by aggressive traders, but the recent high volume move through the 50 day SMA and the recent golden cross (20 day EMA crossing above the 50 day SMA) suggests serious technical improvement here. Entry from the current level down to the 20 day EMA makes sense with a closing stop beneath the 50 day SMA. 7.40 would be a short-term target, although we believe a test of the late October high near 9.75 is likely in time.”

Update: JKS hit our initial target very quickly and – in just TEN DAYS – hit our ultimate target of $9.75. Patience to enter from our initial price near $6.80 and again at the 20 day EMA (approximately $6.30) would have resulted in a 49% gain in less than two weeks!!! Clearly, this was an aggressive trade that required considerable risk, but these are the types of returns possible in higher risk trades. JKS was suggested at the same time as BVSN and both have proven to be 2 of the best setups in our history. If you recall, BVSN was up 64% in one week. Continue to watch JKS. We’d need to see another breakout above $10.00 before growing more bullish. Until that occurs, pullbacks to the $7.25-$7.50 area look buyable for those with high risk tolerance levels.

If you’d like to begin receiving our Chart of the Day and also benefit from our weekend marketJOURNAL Click Here

Invested Central Chart of the Day: AMED

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AMED is a $342.9 million healthcare company that provides home health and hospice services to the chronic, co-morbid, and aging American population. Technically, AMED seemed to have bottomed with the gap down and selling in early November. Since that time, AMED traded sideways for the next few months until volume surged in late January and AMED cleared its 20 day EMA and 50 day SMA. Subsequently, there was a golden cross (20 day EMA crossed above 50 day SMA), and on Tuesday, AMED successfully tested its 20 day EMA. We like entry from the current price down to the 20 day EMA with a closing stop beneath the 50 day SMA. Initial resistance will come just above $12.00, but a breakout above the $12.10 level on increasing volume would measure to the $14.50-$15.00 level. That’s our target.

You should consider these educational charts and analysis for possible short-term trades only. We are not registered investment advisors and the following trade setups should not be viewed as investment advice. Accordingly, please check with your financial advisor before deciding to buy or sell any of these investment securities. Read our full Disclaimer below.

Because we do not recommend holding a stock into its earnings report, please check all earnings dates on Charts of the Day stocks before making a decision on whether to consider a trade.

Invested Central Chart of the Day: AAPL

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AAPL is a $464 billion technology company that designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players; and sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. At Wednesday’s intraday high, AAPL was threatening a market cap of half a trillion dollars. But note the massive volume (highest over the period shown) that accompanied a very bearish short-term candlestick – the bearish engulfing candle. We’re not exactly bearish AAPL and we don’t know that we’d short it, but technically we would consider being long either until AAPL can clear Wednesday’s open of $514.26 on a closing basis. Look for volume to confirm that move. The major indices, particularly the NASDAQ, have been looking for reasons to consolidate recent gains and AAPL’s trading on Wednesday may have provided the biggest reason yet. That is one UGLY candlestick. The next week may prove to be a difficult one for the high-flying NASDAQ as its largest market cap company – AAPL – finished very weak.

You should consider these educational charts and analysis for possible short-term trades only. We are not registered investment advisors and the following trade setups should not be viewed as investment advice. Accordingly, please check with your financial advisor before deciding to buy or sell any of these investment securities. Read our full Disclaimer below.

Because we do not recommend holding a stock into its earnings report, please check all earnings dates on Charts of the Day stocks before making a decision on whether to consider a trade.