ESM
This is one short term reversal trading pattern I'd like to share with the board that is used for daytrading stocks with major (panic) selling pressure...you know, those stocks that move down -20%-40%+ in just a few hours. This pattern is usually good for a quick 10% bounce and has proven to be extremely profitable when identified correctly. They key is finding stocks with regular waves and rapid selling.
Criteria
Time Frame - 1 min / 180 min chart (whatever is most applicable)
Red Line - Downsloping trendline resistance
Blue Line - 40/50 Period MA (Find an MA that connects the tops of the waves)
Key Points
Yellow Highlight - Volume spike
1st Green Highlight - Higher Low Wave
2nd Green Highlight - MA Violation
3rd Green Highlight - Trend Confirmation (ENTRY LEVEL)
Sell Objective - Previous consolidation base
Stop - 3% below the "Higher Low Wave"
*Factor in other long term support levels...
(http://forum.chartsetups.com/attachment.php?attachmentid=900&stc=1)
Now lets take a look at a real life example.... Real money, real time, real profits!
In PLAY - CBi
*Delayed earnings release sending the stock down 16% . Currently testing trendline support, 200 day ma, and horizontal support. If earnings are even neutral the stocks moves 10% from current levels.
CBI
Time Frame - 1 min / 180 min
Red Line - Downsloping trendline resistance
White Lines - 40 and 50 MA's
Green Circle - Volume spike
1st Green Dot - Trend Violation
2nd Green Dot - Trend Confirmation
Blue Blur Line - Sell Objective
150 shares purchased at first trend violation - $22.55
150 shares sold at sell objective - $24.40
+$1.85 per shares or +$277.50
(http://forum.chartsetups.com/attachment.php?attachmentid=869&stc=1)
Got my entry at 5.75 (3rd green dot) but missed my fill (sell) 6.20 by a penny! :o
Later price of 6.45... +.80 possible. Great swing....
Full tutorial published here: http://www.craftytrader.com/~craftytr/press/articles/article.php?article_id=11
Enjoy.... >:D
I really like this model too - may not have quite as big profit potential, but seems to be a lot more common. Also very good for day trading/short term swing trades. My only problem is with the Moving averages - do they have to be 40/50?? sometimes this is just too shallow, or is this the whole point, that a MA this long will only be pulled down by a serious downward selling?
Moving averages are whatever connects the tops of the downward move. Notice it says (whatever most applicable)
In the case I used 40/50 in the scottrade window.... this is NOT the 40/50 day ma..only the 40/50 period ma in scottrade.
Do you think we might have another exhausted selling bounce forming in AOB??? This a 15min chart, with a 50 period MA - thoughts?
The chart you have meets all of the criteria besides the "higher wave". To do so it would need to break over 4.60 as that was the previous waves high. otherwise looks good
cal >:D
Thanks, your strategy looks really interesting, just curious, do you see exhausted selling model apply to ISPH? ???
Hey folks,
Recently got the ESM published with www.investopedia.com , a well respected trading website. You can read the finished publication here: http://investopedia.com/articles/trading/06/ESM.asp
Cal >:D
Nice one Cal, just used it once again, after the sell-off on SUF - looked to fit the ESM very nicely on a 15 min chart/21MA. Found the ESM quite useful several times in recognising when to enter a heavily sold off stock. Keep up the good work ;)
That AOB chart using the ESM model above was excellent ScottishTrader! I have been so focused on the WW thread that I didnt get the chance to take the AOB trade. Nice work and thanks for the kind words! ;)
Dont forget the ESM can be used on long term charts with the MACD. One stock I am using it on is BBI - high risk/high reward. >:D (11 month chart)
cal
BBI is so good, I'll post the chart for others to see:
Very nice example of long term ESM formation. My target would be $5.50 (correct me if I'm wrong)
Also, Here's the 15 min chart on SUF - any comments appreciated
BBI chart with the ESM looks great! Basically the same annotations I made on my chart. You obviously understand the model. OUTSTANDING! Now I know people are getting this... ;D BTW: Im in BBI from 4.00 +4%
SUF also looks good, perfect fit for the ESM - PANIC SELLING. Target of 12.50 is appropriate. Sometimes I like to place a trailing stop below the support moving average if I have a short time horizon (to protect decent gains). I just checked out the 5min 2.5 day chart of SUF in scottrade and it looks great. I see an ascending triangle forming. You have 12.50 as a target but SUF could actually reach the bottom of the first steep drop off - 13.75 (sell just before that - 13.30)
On the other hand if it breaks down I would exit the trade as soon as 10.40 prints...
I dont want to get too complicated but in theory you could use the ESM and "flip it" (EBM) to find a top.
cal >:D
Not sure what to make of GOOGLE (GOOG)
Could be a great candidate for the ESM tomorrow!
SUF hit the 10.40 level.... did you set a trailing stop for that???
Nope and got burned bad yesterday - basically ignored one of the main rules of playing pull backs - as soon as it looks bearish - get out! Saw a solid profit turn into a loss on yesterday's sell off, and paid a pretty penny for my lesson ugh :P
I did take not and shoulda listened....
I like to use a stop under the previous days low of day if nothing else. In this case I liked a trailing stop under the upsloping trendline (10.40)
I think SUF looks like a good short now....
Will be using the ESM to hopefully pick a bottom for GOOG. Here is my starting chart. self explanatiory. GOOG is still 2-3 weeks from any kind of a bottom.
First things first in the ESM for GOOG. We need the blue downsloping trendline broken on the upper right hand corner of the chart...
Will be using the 30 day moving average as well it looks like.
Will be updating this post periodically. check back...
ADZR is selling off....not really "panic selling" but Ill try the ESM - >:D
Inputs - 10 min chart (scottrade)
MA - 50 period moving average
Type - Candlestick
Duration - 3 day chart w/volume indicator
Possibly a higher low wave started...
Downsloping Trendline - 2 Touches (weak validity)
Green Support Line Unecessary....unless you are playing the bounces on the way down
Putting the ESM to the test on my first penny...w/ money...
ESM TUTORIAL - http://www.investopedia.com/articles/trading/06/ESM.asp
Bingo,
Looks like another ESM play with QTWW - 5min chart 40MA. Unfortunately, I'm caught on the other end of it, holding with a loss from 2 days ago - really an ugly sell-off, but I'm hoping our WW target is still happening on this one. May see the pullback today - perhaps a good entry for anyone interested, but not in?
What do you think Cal?
Hmm, not sure about that chart you have there. The one main thing it lacks is the volume spike...its important too because it signals capitulation ("the sellers have given up")
WOW Scottish Trader! I think you were right...guess we didnt need a volume spike on this one!
APPLAUD! >:D
Don't forget that this was only a 5 min chart - there was sustained volume down there at that bottom, maybe not a clear spike, but definitely a pickup when it hit that first bottom.
Anyway, I'm just glad it did bounce back - really didn't like to see myself in so much red so quickly!
Here's hopng QTWW will see $5+ next week!
Here is the ESM on ADZR -
Following GOOG with the ESM.... >:D
Hi Cal
Thanks for the Analysis on GOOG.
52% profit with my Puts . ;D
1-2 more down days possible - probably time to take some profits on those puts....
ESM? ascending triangle
GNBT ESM CHART
Volume picking up - possibly spiking. Long may be ready to take over here. I think the next two days worth of trading will create a bottom...Its probably time to start getting some GNBT here...(2.25)
Capitulation selling and possible accumulation starting.
Highest probability entry is on a break of that RED downsloping trendline.
Hey Cal,
Classic ESM in play on HOM right now - we got exhaustive selling, 1st bounce, second higher bounce and are about to hit the 40MA on the 1 min chart. Onlye thing we need now is a break of the descending trendline and a gradual rise into the 8s - whaddya think??
OK cancel that, and thank god I didn't play it!!! HOM just tanked again eucch!!!! :P :P :P
I suggest you read the new stocklemon report before you even think of buyimg:
http://www.stocklemon.com/06_06_06.html
I'm so glad to see someone else looking for a selling volume capitulation in here.
I've been calling it a momentum low entry (from John Bollinger's Bollinger Bands).
I was starting to doubt that strategy.
Most of the time, I find that when I enter, the price goes up.
The problem is I don't exit while it's still on a plus for the day.
Recently, about 2 day's ago, I've been testing the linear regression/RSI(2).
I almost abandoned the idea of selling volume capitulation.
Now, I plan on integrating both.
We'll see how it goes.
How do you see MAMA right now?
It looks like it had a selling volume capitulation on the 1 minute,and has broken the downtrend.
MAMA just broke the upper bollinger band on volume in the 1 minute chart.
Quote from: ScottishTrader on June 06, 2006, 11:11:21 AM
Hey Cal,
Classic ESM in play on HOM right now - we got exhaustive selling, 1st bounce, second higher bounce and are about to hit the 40MA on the 1 min chart. Onlye thing we need now is a break of the descending trendline and a gradual rise into the 8s - whaddya think??
Haha,
Hey a
bit late with my reply (pm me next time ;))
- Yes, it MUST break the downsloping trendline ALWAYS...crucial element in the success rate of the model.
cal
After re-reading this thread and the links attached , the Exhausted Selling Model looks very similar to what I've read on Bollinger on Bollinger Bands if I remembered it correctly (I just borrowed the book from the library).
1) Momentum low = Big volume outside the lower band
2) Recovery rally = should touch or exceed the middle band(moving average that connects the highs)
3) Price low = should be a low inside the bollinger band with lower volume
4) Entry = a break of a tight upper band with increased volume.
If this is incorrect, please let me know.
ESM play here - risky since it is a 1.00 stock - but at least it fits the proper criteria (the 4 checkpoints) :o
CPST
nice calven, don't think i've seen an ESM applied on a daily timeframe. seems like a reasonable target could be the 1.60 llevel.
Nice Calven,
That picture looks really nice and clear.
Applaud.
Ares