I’ve spent the last year and a half learning how to trade on the stock market. I am a PhD member of Investools, an excellent education company. Last week I was in Phoenix to attend their live two-day Advanced Technicals workshop, taught by Dave Johnson. I felt like it was the missing piece in my trading thus far. I now have a much better idea of how to predict behaviour on the charts.

But I’ll never make any money doing this unless I try it. So I decided to focus on one particular pattern to perfect with paper trading before risking my real money. That pattern is flags, a short term price pattern that moves counter trend.

From my watchlist, on January 29th I determined that GLD is currently in an uptrend and has recent flags, indicated by the parallel lines on the chart below.

More importantly, the day closed with a bullish engulfing pattern. It’s the large white candlestick following the red candlestick. The stock opened below the previous day’s close and closed above the previous day’s open. The engulfing pattern is a self-confirming pattern; that is, no other signals are required to confirm the change in market sentiment.

GLD - SPRD Gold Shares ETF Nov 08 - Feb 09

GLD - SPRD Gold Shares ETF Nov 08 - Feb 09

I place an OCO order after the market closed to buy GLD at $89.50, the close of the day, with a stop limit at $86.50, and a sell limit order at $94.00. The stop limit order price was estimated by the resistance level created at the base of the engulfing candlestick. On Friday, the stock opened at $90.70 and never got lower than $89.65, so my order never filled. So, two lessons learned at once:

1. Place the order in the last 15 minutes of the trading day of the engulfing pattern; or,

2. Set the after-hours limit price higher than the close of the day. That way if the stock gaps up a bit, the order will still fill.

My order didn’t fill; unfortunate, because the stock traded up 2% the next day. But I’m still tracking the trade as if it did. Now I’ll be watching for the next changing pattern – a bearish engulfing pattern, hammers, haramis, or shooting stars – and preparing the “exit” the trade at my target price as though I had the trade.

Tagged with →