As a swing trader, decide to be a bull or a bear on the weeklies – execute on the dailies. As a day-trader, decide to be a bull or a bear on a 25-minute chart, execute on a 5-minute chart. Kerry, by the way, prefers a different pair – he makes his strategic decisions on 39-minute charts, executes on 8-minute charts (notice that he uses the same ratio – about 5 to 1).Look at it this way: you see an attractive girl in a club and want to invite her to dance. Take a look at the bigger picture: is she at the club with a bunch of girlfriends or is there a big mean guy with a facial tattoo right behind her, staring at you? Do yourself a favor and make a strategic decision based on the big picture before zooming in on your attractive trade!Spend some time looking at many trades featured in our A&K Journal on the website – and you will see multiple examples of this strategy. Remember: make a strategic decision on the longer-term chart, tactical on the shorter-term chart, and keep the ratio between them at about five to one.Alex

What is the best way to determine trends and analyze the current trend condition?The basic structure of trends is prices making higher lows within an uptrend and lower highs within a downtrend. When looking at charts with all our indicators and price bars showing the intraday highs and lows we can lose sight of a basic trend structure.Let’s take a look at a chart of closing prices only, but smoothing out the price fluctuations using a simple 3 period moving average.

One of my favorite patterns is called a Slim Jim. The pattern usually forms as a high-range trend continuation/consolidation with declining volume after a major high-volume gap. MWW and NOV have formed the prototypical example of the pattern–huge gap up on high volume and subsequent sideways movement with declining volume. This tips us to the fact that buyers are content to hold their shares and sellers are scarce. Buy on a break of resistance driven by an increase on volume indicating buyers have decided to push the stock on a second trend leg. Stop goes either just below the point of breakout or at the bottom of the pattern. This pattern also works well on a second entry if the first one fails. Pay attention to the pattern if for some reason price drops out of the bottom and then returns to the consolidation. This pattern failure & return can result in an explosive move up. This pattern appears in all time frames and is easy to spot. Often the second entry is the best one, so be patient, don’t risk a lot and keep the stops tight. While I usually avoid breakout plays, these Slim Jims are more of a consolidation or continuation pattern of a trend move. If you miss the breakout, look to enter on a pullback, particularly if volume rises, which indicates that institutions have decided to launch the stock on its second and most profitable trend leg.

As was pointed out last week, COST is working its way through a

A Spike Member asked for another example of the Squeeze play, and I happened on COST. After strong earning, COST has drifted sideways on the weekly chart, forming a nice tight, dynamic triangle as the price range compressed. Now on the daily chart a Squeeze is developing. Note this Squeeze or Slim Jim pattern should have at least 12 horizontal bars. This one has about 17. At the right edge of the chart, the 2-day RSI and 2-day FI indicators are getting ST/OS as MACD gets healthier and the Bollinger Bands tighten. I like to enter when the RSI & FI show momentary weakness, so COST is getting close. There’s really not a lot more to the pattern than that, except be sure to use good money management; price could go the other way. If you get shaken out, think about a second entry. Also, this pattern will show up in the front of earnings or news, but COST announced already. A news announcement is certainly possible. The key to the pattern are the Bollinger Bands. They compress together as the range in daily prices shorten. This squeezing together indicates compression, or a reduction of volatility, which will sooner or later revert to an extreme.

The Squeeze, sometimes called a Slim Jim, is a pattern I and a couple other Spikers trade. The pattern indicates a decrease in volatility followed by a surge and a strong move. As volatility declines, the Bollinger Bands squeeze together indicating a period of base building. Then usually a news event or a buyer in size, will trigger volatility expansion and a wave of new buyers will plow into the stock. I use Bollinger Bands to find them, and look for circumstances similar to the one SPN is showing.In mid-September, SPN announced good newsaccompanied by a major spike on high volume. The spike closed far outside the bands, which indicated significant strength and the potential for more upside. Then it traded sideways for several days (make sure it’s at least 12 bars). As the bands come together, it had a little test of resistance at 27, then drifted back as the short-term indicators dropped into ST/OS area. A trader could have bought as the short-term indicators first dropped and anticipated the squeeze, or at the point of the false break (which I did and had to sit through the test of support again), or on the recent decline of the 2-day RSI below 30. The reality of these lateral squeeze patterns is that they usually set up in front of a news event, so picking direction can be a gamble (I won’t trade them into an earning announcement.)Anotherstrategy is to buy an option straddle as volatility drops and wait for the move (I met a guy that had made a fortune doing this on S&P squeezes during the 1990s). I usually take a position in the direction of the initial spike and trend and keep a tight stop on it. If you get stopped out, pay attention and look for a second entry.A couple of other comments–if you find a squeeze setting up around a trending 20-day EMA take a position early and let the Squeeze set up. At other times, they will set up in the last gasp of a move, so be careful. Sometimes they form right after a top or bottom completes, and initiate a new trend. I also look for them on the weekly charts and trade the subsequent move off the daily charts.

At the Spike Reunion (which was exceptional) I was talking with some folks about symmetrical triangles. I thought I would do a post explaining it a little better. CM is a fundamentally sound Canadian bank that forms both large and small symmetrical triangles as part of its price behavior. Like most world banks, CM sold off in late 2008. Eventually as the good banks got separated out from the crummy ones, CM improved in price, rising from around 30 to a new high around 78 in April 2010. Instead of correcting by decline, it traded sideways between 78 and 62, eventually completing a multi-month symmetrical triangle on the weekly chart. It busted loose in late August and is now moving steadily to test the 78 highs. Symmetrical triangles typically form mid-way through a trend move, have 5 points, and usually resolve in the direction of the trend. If you’re lucky enough to find one forming, you can begin to buy at point 5 in anticipation of the break out.If you missed the move on the weekly, CM was nice enough to form a small “Dynamic Triangle” on the daily chart. The break offered another chance to get long. Now, we’re almost ST/OB as we challenge the highs at 78. While you could take a chance and buy on a solid break of the old highs, the surer trade would be to wait for a pullback and retest. Buying on successful tests of support, and letting the short-term indicators (2-day RSI and 2-day FI) decline to oversold is the preferred and most reliable approach. CM’s 2007’s high was at 109 in 2007, so if we break the 78-80 area we should head there. If so, then buying dips and pullbacks on CM will work well.