How to Profit From The Trading Reports

The Trading Reports newsletter is published each trading day and consists of market commentary, pivot points and two trading sections. The Friday evening edition also features a Hit List for the next week of 20 to 30, or more, strongly trending stocks gleaned from proprietary screens based on chart patterns, time and price.

The Swing Report focuses on those stocks in uptrends (or downtrends) that show the best prospect for trend continuation over the following three to seven days. A profit target of 2 points is typically used for the first half of the position, at which point a protective stop loss is adjusted to break-even on the remaining position. As the stock moves up, a trailing stop is used to protect the profit on the second piece.

The DayTrading Report highlights those stocks that are poised for immediate continuation in the next session based on the prior day's signal bar and pattern. Day picks use a 1-point opening protective stop loss, and these picks are closed out at the end of the same trading day.

All picks are based on the Hit and Run Methodology explained in my books Hit and Run Trading and Hit and Run Trading II. The method revolves around the notion that strong trends persist, and that although price movement cannot be forecast per se, stocks in motion tend to continue in the same direction -- at least in the short term. Consequently, I look to buy stocks in strong uptrends as they crouch or pull back before exploding again, and I look to short stocks in strong downtrends as they try to stand on their tiptoes.

As a primer on using The Trading Reports to your maximum advantage, below are a series of picks from this year to show where trades work and where they don't.

First up, several swing trades:

Cleveland-Cliffs (CLF:NYSE)
Long candidate for Feb. 11, 2005
Entry: 66.80
Stop: 64.80
Initial Target: 68.80
Pattern: Cooper 1-2-3 Pullback / 180
Sold first piece Feb. 14 for a gain of 1.30
Sold second piece Feb. 16 for a gain of 3.20

Cleveland-Cliffs

On Feb. 11, Cleveland-Cliffs hit the entry point at 66.80 off a Cooper 1-2-3 / 180 Pullback setup (1). The stock initially traded lower on Feb. 11 but triggered long on trade above the high of Feb. 10.

Cleveland-Cliffs 10-Minute

Because of the market's tone, for Monday, Feb. 14, I lowered the first projected target to sell Cleveland-Cliffs on any open above 68, which occurred, locking in a gain of 1.80. The stop was raised to break-even. According to instructions, profit was taken on the second piece at 70.

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Cogent (COGT:Nasdaq)
Short candidate for Jan. 24, 2005
Entry: 29.45
Stop: 31.45
Initial Target: 27.45
Pattern: Expansion Pivot / 180 / LROD
Covered first piece Jan. 25 for a gain of 2.00
Covered second piece Jan. 26 for a gain of 70 cents

Cogent

On Friday, Jan. 21 (1), Cogent left an LROD / 180 sell signal (also in the spirit of an Expansion Pivot sell signal). An LROD is a Large Range Outside Day (either up or down). An Expansion Pivot is a move above (for buys) or below (for sales) by a stock from its 50-day moving average that shows the largest range of the prior 10 days.

Cogent 10-Minute

The first piece in Cogent was covered for a 2.00 gain as the stock reached the 27.45 initial target on Jan. 25. The trailing stop was brought to break-even immediately. In The Trading Reports for Jan. 26, I lowered the stop to 28.75, allowing me to lock in a gain of 70 cents on the second piece (2).

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Timberland (TBL:NYSE)
Long candidate for Feb. 7, 2005
Entry: 66.80
Stop: 65.50
Initial Target: 68.80
Pattern: *180 (an asterisk indicates a pattern that doesn't conform
to its original rules but is defined as "in the spirit" of its namesake)
Sold first piece Feb. 9 for a gain of 2.55
Sold second piece Feb. 11 for an approximate gain of 5.80

Timberland

On Feb. 7, Timberland left a setup in the spirit of a 180 buy signal (1). A 180 buy signal occurs when a stock is in an uptrend and above its 50-day and 10-day moving averages, and closes in the bottom 25% of its range one day and on the following day, closes in the top 25% of its range. Although Timberland did actually close on its low on Feb. 6, good judgment in trading is as important as a method. The "180" buy signal was interesting as it occurred along with two Cup and Handle patterns and was also the first turndown in the daily chart since the buy signal five days prior.

Timberland 10-Minute

The initial target for the first piece in Timberland was 68.80. Consequently, the first piece was sold when the stock gapped open at 69.35 on Feb. 9. A trailing stop on the second piece was raised to 71.00 on Feb. 11. Then, as per instructions, on Feb. 11, I got out of the second piece near 72.60 as the stock closed at 72.62 (instructions were to get out before the close) for a gain of 5.80.

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Usana Health Sciences (USNA:Nasdaq)
Long candidate for Feb. 4, 2005
Entry: 38.55
Stop: 36.55
Initial Target: 40.55
Pattern: Extended Level Boomer
Did not trigger

Usana Health Sciences

Here is an example of a setup that I failed to revisit and which subsequently exploded. It pays to keep a stock on your radar for a few days after a signal. Note the 180 buy signal on Feb. 8. The method worked.

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Orckit Communications (ORCT:Nasdaq)
Long candidate for Feb. 14, 2005
Entry: 49.10
Stop: 47.10
Initial Target: 51.10
Pattern: *Cooper 1-2-3 Pullback / 180
Triggered and shagged loss of 2.40 on a gap open

Orckit Communications

Orckit Communications 10-Minute

Orckit triggered up long at 49.10 (1) on a false Opening Range Breakout (ORB) but quickly declined 2.00, stopping out at the protective stop of 47.10 (2).

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Valero Energy (VLO:NYSE)
Long candidate for Feb. 9, 2005
Entry: 59.60
Stop: 57.60
Initial Target: 61.60
Pattern: Cooper 1-2-3 Pullback / 180
Sold first piece Feb. 11 for a gain of 1.76
Sold second piece Feb. 17 for a gain of 5.00

Valero Energy

On Feb. 8, Valero was in a strong uptrend and left a Cooper 1-2-3 / 180 Pullback buy signal. Note that the stock traded up to 60.06 on Feb. 9 but traded down to 58.15 without stopping the trade out. The best setups sometimes stutter-step before exploding.

Valero Energy 10-Minute

The first piece was sold on Feb. 11 for a gain of 1.76 as I had adjusted the initial target to any open above 61.00. The trailing stop was raised to 61.00 on Feb. 15 and then to 62.85 on Feb. 17. The second piece was sold at the final target price on Feb. 17 for a 5.00 gain.

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Air T (AIRT:Nasdaq)
Long candidate for Feb. 11, 2005
Entry: 20.35
Stop: 19.00
Initial Target: 22.35
Pattern: *Cooper 1-2-3 Pullback
Sold first piece Feb. 11 for a gain of 2.00
Sold second piece Feb. 14 for a scratch

Air T

For Feb. 11 (1), Air T was a Cooper 1-2-3 Pullback setup, with entry at 20.35. Note that Air T initially traded lower than the prior session's low -- pulling the rubber band back even more. Half the shares were sold at a 2-point profit target of 22.35. According to the methodology, the stop on the second piece was set to break-even at 20.35, which was hit Feb. 14.

Air T 10-Minute

(No additional comments)

Now, let's turn to some daytrading examples.

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Psychiatric Solutions (PSYS:Nasdaq)
Long candidate for Feb.4, 2005
Entry: 39.00
Stop: 38.00
Pattern: Expansion Breakout

Psychiatric Solutions

Psychiatric Solutions left an Expansion Range Breakout buy signal on Feb. 3 (for trade on Feb. 4) (1). An Expansion Range Breakout occurs when a stock makes a new 60-day high on the largest range in 10 days. Many times the stock will see immediate follow-through and will signal a new leg up. However, in choppy markets, sometimes traders who carried the stock overnight on the breakout will sell into the next morning's bulge. Note the same pattern in January (2).

Psychiatric Solutions 10-Minute

(No additional comments)

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Nike (NKE:NYSE)
Short candidate for Feb. 8, 2005
Entry: 85.90
Stop: 86.90
Pattern: 180

Nike

Nike left a 180 Sell Short setup (1) as the stock was trending down below both its 50-day and 10-day moving averages.

Nike 10-Minute

Nike opened at 84.55 and ticked back up to 85, allowing a short sale. The stock waterfalled to a low at 82.60 (1) for a quick profit potential. Note how Nike followed through from Feb. 7 but made a first-hour low. Also, note the three-plus bar surge to a low. Many times, stock movement plays out in threes.

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Ultra Petroleum (UPL:Amex)
Long candidate for Feb. 17, 2005
Entry: 56.45
Stop: 55.45
Pattern: 180

Ultra Petroleum

On Feb. 16, Ultra Petroleum left a 180 buy signal and was used as a day pick. The stock triggered long at 56.45 on Feb. 17 and traded up to 57 before reversing sharply and stopping out with a 1-point loss.

Ultra Petroleum 10-Minute

A tip-off to the reversal in Ultra Petroleum occurred as the stock made a first-hour high and traded back below its Opening Range Breakout (ORB). A Reverse ORB (back below the opening range) set the tone for a reversal day.