ing out, you decrease the size of your win and increase the number ofyour winners, while still maintaining part of your position in case a stockcontinues moving in your favor. Insurance also buys you piece of mind,which could be as important as monetary issues. When you trade every
PART TWO Trading System
120
day, you need to make sure that you don’t get burned out. Again, as withall trading choices it’s a matter of personal preference. If you feel you canplay the market by scaling in, this is a great accomplishment.There are several methods to help you determine a new stop placement. They depend on the type of stock movement.1. Consequent Range Breaks. Consequent range breaks resemble laddersteps. The stock consolidates under each new resistance level, breaks it,and repeats the cycle. As a resistance level is broken, it becomes a newsupport. This serves us as an idea for a new stop placement. As usual, wedon’t want to stay long in a stock that loses support, so we place the newstop under this level, as shown in Figure 11.4.2. Trend Movement in the Channel. Trend movement in the channel ispresented by a series of breaks and pullbacks without the consolidationstage. Price movement can be chambered in the channel, which consistsof two trend lines. The price hits the lower envelope of this channel beforebouncing back, and then makes a new high while remaining within thesame channel. As it happens, we trail the stop so that it’s placed rightunder the lower envelope on each pullback. In this case, this lower linepresents the support, and we want to be out if this line is broken. If the
FIGURE 11.4Consequent range breaks.
CHAPTER 11 Stop Loss Placement and Trailing
121
FIGURE 11.5Trend movement in the channel.
price breaks the upper envelope and moves vertically up, we face theeuphoria stage of the movement, and the stop should be moved under theupper line. (See Figure 11.5.)
CONFIDENCE LEVELSThe concept of confidence levels helps us resolve a contradiction that weoften have to face. Here is the contradiction: Let’s say that your positionin a stock goes in your favor to a price level that allows you to trail thestop. Then it retraces from there without hitting your stop. If it’s showingstrong signs of reversal, what are you to do? You have your disciplinedemanding that you stick to your plan, while you have a strong feelingthat the plan should be altered. This is the eternal conflict between the system and discretionary trading. We feel strongly that any system for intraday trading should allow for a certain amount of discretion. Confidencelevels work, in fact, as an indication that it’s time to alter the plan. Hereis the idea of their placement and use.Let’s say you bought a stock at $20, partialled out at $20.50, and arenow trying to let the profit run on the second portion. As the stock breaksthe next resistance at $20.75, you trail your stop to $20.45, in accordancewith the principles discussed above. Now, $20.75 is getting taken out onthe upside, and the stock stalls at $20.95, which gives you a strong feeling that $21 will not be taken out. You don’t feel that a trailing stop to
122
PART TWO Trading System
$20.70 is a good idea, because this level doesn’t show good support. Itcannot serve as a reliable indication of weakness if this level is broken.Essentially, it all comes to the dilemma of, “Do I let the stock hit the trailing stop and give up a significant portion of the current paper profit? Ordo I take the profit now and kill the chance for a bigger move?”That’s where we use a confidence level, placing it at $20.75. If thislevel is broken on the downside, we change our original plan. While ourtrailing stop is still in place, our exit strategy is now to sell our shares onthe first worthy bounce. If the confidence level is broken, we don’t expectthe stock to go to new highs anymore, and any bounce between the pricerange $20.90–$21 is to be used to exit our remaining shares.
CHAPTER 12
Trading Setups
I
n this chapter, we discuss setups that we apply in our everyday trading.They will look familiar to an experienced trader although there is a certain spin on classic setups. For instance, the well-known cup-and-handleformation is tweaked somewhat for intraday trading. Also, such a commonly known setup as the ascending (descending) triangle has a certaintwist that we describe.Most of our setups with the exception of capitulation and euphoriaare trend-continuation formations. Capitulation and euphoria are the onlytrend-reversal setups in our arsenal. But, as you know from the previousdiscussion, there are many ways to trade the same setup. If a trade fails asa trend continuation, it could be faded for a trend reversal. This approachis in keeping with what we discuss about the role of setups. Although theydo not predict the direction itself, they show the signs of direction, and ifthe signs tell us that upward movement has failed, then a short could bejustified. Breaking of the stop level indicates failure. Breaking of the stoplevel before the setup is triggered invalidates the setup. This way we candefine a stop level as a level for fading the setup. This is also known astrading of pattern failure and can be one’s trading style.Also, as you know from early chapters, every setup can be playedwith a different degree of aggressiveness. So, as you see the descriptionof the setup with a recommendation to buy on the breakout (regularentry), you can apply to this all the possibilities we discuss earlier: buying before confirmation or buying after the breakout and test of newsupport.
123
Copyright © 2004 by GST Captial Group, LLC. Click here for terms of use.
PART TWO Trading System
124
JUMP-BASE–EXPLOSION (JBE) SETUPThe jump-base–explosion setup can be described as consolidation nearthe high after initial upward movement. The idea of this setup is that aninitial upward movement (the J phase) shows the direction of major interest. Then a stock meets resistance and consolidates under this level (the Bphase). If the stock is strong enough to stay close to the resistance levelwithout sharp retracement, it means that the path of least resistance is stillupward and that the stock is likely to continue in the same direction assoon as it digests the distribution. We prefer the range of the consolidation to be narrow, usually not more than 25 cents. The first stage of thesetup (Jump) should be not less than 1.5 times, but preferably 2 times, thesize of the range (Base). With a range of 25 cents we get ideally 50 centsor more of the initial movement.This setup has several variations. They differ by the formationwithin the consolidation range.1. Flatline at the High. Entry should be taken as the flatline makes a newhigh. The stop is placed under the nearest support, or, if the initial run-uphas no pullbacks to indicate where support is, the stop is defined by risktolerance. (See Figure 12.1.)2. Consolidation after a Shallow Pullback. Volume should decrease onthe consolidation phase. The buy signal is a break of the upper limit of therange (U). The stop is placed under the lower limit of the range (L). (SeeFigure 12.2.)3. Narrow Range Near the High. Volume should dry up on pullbacks andincrease on upward pushes. Buy and stop triggers are similar to setup 2.(See Figure 12.3.)4. Ascending Triangle. The ascending triangle is similar to setups 2 and 3,with a somewhat stronger indication of successful breakout. This setup is similar to the classic ascending triangle, with the only distinction being that wewant this formation to occur within the consolidation range. (See Figure 12.4.)
DROP-BASE–IMPLOSION (DBI) SETUPThe drop-base–implosion setup mirrors the JBE on the downside for a short play.Everything that was valid for the JBE setup is valid for the DBI as well. It hasthe same formations and the same rules for entry and stop placement. An ascending triangle is going to reverse to a descending one, of course. (See Figure 12.5.)
125
Flatline at the high.
FIGURE 12.1
126
Consolidation after a shallow pullback.
FIGURE 12.2
127
Narrow range near the high.
FIGURE 12.3
128
Ascending triangle.
FIGURE 12.4
129
Drop-base–implosion setup.
FIGURE 12.5
PART TWO Trading System
130
OPEN-HIGH– AND OPEN-LOW–BREAK SETUPSOpen-high– and open-low–break setups are breaks of the range that areplayed similarly to JBE and DBI setups. The only difference is that theseare setups for the beginning of the trading day, so they usually don’t haveinitial movement. The idea is to define the most likely direction of theprice movement by the direction of the break of the opening range.For these setups we want the stock to move within the range, notmore than 25 cents. These are setups for the first 15–20 minutes of thetrading day.If the stock breaks the high of the range, we go long with the stop atthe low of the range. If the stock breaks the low of the range, we go shortwith a stop at the high of the range. Since the opening is often quitevolatile, this setup is frequently used for scalps unless the market shows astrong trend. Scalpers look for a 1:1 or 2:1 ratio of reward to risk. Holdersscale out into a 2:1 reward/risk ratio and look for a trend. (See Figures12.6 and 12.7.)
CUP-AND-HANDLE SETUPThe cup and handle is also a breakout setup and is very common forlonger time frames. It works best on a day’s high, although it can beapplied in the middle of the daily range as well.In Figure 12.8, points 1 and 3 are the cup edges at the day’s high.Point 2 is the cup bottom. The volume should dry up close to point 2 andpick up close to points 1 and 3. The cup should continue for a minimumof 30 minutes. But more than 30 minutes is desirable. In our experience,the optimal time for a cup forming is 1 hour or more.Point 4 is the bottom of the handle, and volume should dry up here.The handle should not have retracement deeper than 50 percent of cupdepth. The volume should pick up at point 5. The handle should continueno longer than 30 percent of the time of cup formation, 25 percent is desirable. The stop is placed below the handle bottom. The entry point can betaken aggressively or conservatively as described earlier.
CAPITULATIONCapitulation is a reversal setup. It’s that fast, sharp decline with verticalmovement and volume-pace pickup that are necessary componentsbecause they suggest panic.Capitulation is one of the riskiest setups. It requires fast reactionsand well-developed scalping skills because it sometimes provides just a
131
Open-high–break setup.
FIGURE 12.6
132
Open-low–break setup.
FIGURE 12.7
133
Cup-and-handle setup.
FIGURE 12.8
134
Capitulation.
FIGURE 12.9
CHAPTER 12 Trading Setups
135
small, quick bounce. It could be treated as a scalp or as a hold for therecovery, depending on market conditions. A stop is placed under thelevel that the stock has bounced from as discussed in previous chapters.Keep in mind that this setup is more conceptual than others. Itdoesn’t have an exact indication of how big the vertical drop should be toprovide the best chances for a profitable entry. In practical examples citedin Part Three, you will see that this setup contains a much bigger “art” element compared to others. (See Figure 12.9.)We do not describe euphoria as a separate setup here. It’s an exactmirror of capitulation. The main reason for not including it in our list ofsetups is that we avoid shorting strong stocks altogether until we see clearreversal. Shorting strong stocks can be even more dangerous than buyingcapitulation. In Chapter 13 and in practical examples, we discuss the signsof trend reversal that we use for shorting the upward move exhaustion.
TRADER’S ACTIONFollowing is an algorithm of the action traders should take when a signalis generated:1. Define the setup by comparing a stock chart to the charts of setups.2. Evaluate the risk by volume and the look of Level 2. If you see low volume, a big spread, thin levels, small sizes shown by market participants,and/or a wide gap between levels, you know this is a high-risk stock.Skip the trade altogether or lower your share size. Be prepared to limityour expectations to scalp.3. Define the trigger point and stop level as the setup suggests.4. Evaluate the stop from the perspective of your risk tolerance. If the stopexceeds the size of the loss dictated by your risk management, loweryour share size or skip the trade altogether.5. Define the conditions that work in favor of the setup and the conditionsthat invalidate it. If the stock breaks the stop level before triggering, then the setupis invalidated. If the stock moves in sync with the Nasdaq-100 (NDX), you needthe NDX directional support for the setup to achieve a higherprobability of working. If the stock moves with no relation to the NDX, you need the NDXto be in favor or neutral to the direction of the setup. Do not takethe trade if the NDX moves sharply against your setup direction.
136
PART TWO Trading System
6. Define the conditions of fading the setup. If the stock breaks the stoplevel before triggering and you get the NDX working against thesetup, then fading is a reasonable trade.7. Define your approach to the trade in terms of aggressiveness depending on market mood. Be aggressive in a trending market and conservative in a choppy market. Pick your method of entry as the setupssuggest.8. As your entry is triggered, initiate the trade without hesitation.9. Monitor your trade as it develops. Don’t let the movements within therange confuse or rattle you. Your trade is stopped out only when thestop is hit. The stop was placed there for a reason. Don’t change yourmind in the middle of action—most likely it’s your emotions talking.10. As the stock moves in your favor, wait for a clear exit signal to closethe trade in full, or partial it out. According to tape-reading principles,slow movement with steady volume indicates a stage where you continue to hold your position. Vertical spikes with sharp volumeincreases indicate an area and time interval to exit, either fully or partially. Be willing to exit in full in a choppy market by taking the scalp.Ride your position in a trending market, protecting the profit by partialling out and trailing the stop.
CHAPTER 13
Trading Market Ranges and Miscellaneous Points
I
n this chapter we review some points and cases that “surround” our trading system, so to speak. By this we refer to situations that are not centralto our system but that occur too often to be ignored. Also, we discussthose situations that present a particular danger.As you have seen from the previous discussion, our trading systemis trend-oriented. However, the market is not always trending. Despite thefact that trends are relatively easy to find in the small time frames in whichwe trade, now and then we run into a ranging market. You need recipesfor this market condition.
TRADING RANGESThere are three types of ranges we would like to discuss. Those are regular, narrow, and expanding. Each requires a different approach and presents a different challenge. We have to add that as for trend traders, aranging market is very tough for us, and we tend to decrease our tradingactivity when we run into range days.
Regular RangeA regular range is wide enough to allow traders to profit from the movementwithin the range. Unlike a trending environment, this range requires thattraders buy low and sell high. The major challenge is to tell the range fromthe trend early enough. If traders fail to identify the ranging market, they aredestined to lose on false breakout attempts. Usually, if we see the markettest the low and high twice and hold, we go into range-trading mode.137
Copyright © 2004 by GST Captial Group, LLC. Click here for terms of use.
138
PART TWO Trading System
FIGURE 13.1Regular range.
When you are trading the range, you need to buy at the first sign ofstrength as the market bounces from the low, or short at the first sign ofweakness as the high is holding. Stop placement is self-explanatory, justoutside of range bounds (see Figure 13.1). The exit point in this case isjust below the upper limit of the range.If you see the volume rising on upward movement and decreasing inthe downward stage, you might want to try to let your profits run. In orderto give your profits room if the market breaks the range, you can scale outof your position by selling half your shares at this point. A trailing stopfor another half should be placed just below midrange. In Figure 13.2, astop would be placed at $19.40–$19.45.The idea behind this is based on the assumption that if a stock isgoing to break out of the range, it should bounce off $19.50 in most cases.If it’s going under the midrange, then most likely the stock will remainrange-bound. If a stock is breaking out of the range, then your new stoplevel should be $19.80–$19.90, just under new support, which forms at$20—former resistance, as discussed in Chapter 12. In this scenario a newset of rules comes into play. Now it would be a trend trade, and the exitshould be made as discussed in Chapter 12.
CHAPTER 13 Trading Market Ranges and Miscellaneous Points
139
FIGURE 13.2Trading within the range.
Narrow RangeTrading in a narrow-range market is very difficult. Unless you are justscalping small movements, all you can do is to wait for the breakout of therange. The time in which a market is locked in narrow limits can andshould be used for preparing for the break, which means identifying candidates you will consider trading when the break finally occurs.The problem with a narrow range is that you can’t trade within itbecause as soon as the stock (index) bounces from the low, it’s alreadyalmost near the high limit of the range, and you have no room for a profitable entry and exit. Attempting to buy at the bottom of the range or shortthe top is too risky since you have no clear indication that range is not getting broken, and, even if your entry is correct, the reward is too small anddoesn’t justify the risk.So, the only thing we are left with is the attempt to play the break outof the range. In order to place odds in our favor, we need to select the stockthat will break with high enough probability, or, at least, one that won’t goall the way back to the opposite end of the range if the break fails.
PART TWO Trading System
140
We need to play the stock that is stronger than the broad market fora long trade or weaker than the market for a short trade. The idea of thissearch is quite simple, yet many traders make many losing trades duringnarrow market conditions because they try to bet on a break without properly selecting the candidates.For a long trade, the stock needs to hang near the high while the market pulls back to the lower limit of the range. If we get such a stock, thenwe have a very good chance for it to break its upper limit as the marketmerely bounces from its lower limit. This situation is shown in Figure13.3, in which the stock chart is combined with the NDX chart.As our long candidate breaks the upper limit, we enter it long, making sure that the market is holding the lower limit of the range and bouncing off it. Now, if the market goes to the upper limit of its range, our stockis likely to go with it and often may be even stronger because it’s beingidentified by many traders as a strong one worth trading in an unsure market. If the bounce fails and the market breaks down, our risk on this stockis minimal, because its relative strength won’t allow it in most cases to godown as fast as the broader market, and our stop will be as usual. If we
FIGURE 13.3Trading a breakout from a narrow range.
CHAPTER 13 Trading Market Ranges and Miscellaneous Points
141
were to buy the stock that goes up and down in the range with the market,we would practically bet on market direction. In the first case we use themarket as an indicator. This is a major difference. The first case is gambling; the second is going with the odds using the relative strength of aparticular stock as an indication of its being a likely candidate.Also keep in mind that this approach is useful as a backup plan intrending markets. As the market is going up, you are playing breakoutsand effectively are going with trend. But you need to have a couple of candidates on the back burner for short play in case the market reverses. Instead of guessing which strong stocks will reverse with the broader market,you are shorting those that were weak before and didn’t break downbecause of the overall market strength. As soon as the market weakens, thissupport disappears and the breakdown comes. A similar approach can beused for finding candidates for a long play during a downtrending market,where you would buy the breakout on market reversal from the lows.
Expanding RangeThe expanding range is the worst market we’ve ever encountered. It isalways costing us stop after stop. This is the market that makes new highs,just above the upper limit of the range, then drops all the way back to thelow, breaks it, and, instead of continuing to the downside, it bounces allthe way back up, repeating the cycle. See Figure 13.4 for an example.
FIGURE 13.4Expanding range.
PART TWO Trading System
142
A widening range with no continuation on any side makes it veryhard to read the movement. Here is what happens when a trader tries toplay this kind of market. As level A is getting broken, trend traders goshort. Instead of a continuation, the market bounces, stopping them out.At the same time, the breakdown doesn’t allow going long for a rangetrade. As level B is touched, traders don’t go short because of the breakout, but attempting to go long won’t work either. A spike over the breakout level is too small to allow any room for profit, and the market dropsback effectively, stopping the traders out. This vicious cycle repeats atlevels C, E, and D. This kind of action is very hard to recognize in time.In theory, you can reverse your position as the market bounces and breaksyour stop level. In reality, this is much easier said than done. You can’trecognize this kind of action on a first or second failed break, and youdon’t know which of the failures is going to be the last one.
MISCELLANEOUS POINTSWe would now like to go over some miscellaneous points—those fine distinctions that allow us to correct our action, those factors that should betaken into consideration in a particular situation. These points serve as ameans of finessing our system and allow us to adapt. When your systemtells you, “If you see A, then do B,” these fine distinctions tell you,“Unless you see C.” With experience traders can collect plenty of thesepoints that help them hone their systems, and make them more adjustable,more flexible, and more “personal.”In setups with consolidation, the time factor is important. Too short aconsolidation usually leads to a fast, short-lived vertical spike whichoften signals reversal. At the same time, too long a consolidation has agreater chance to fail. It’s hard to define the optimal time of consolidation, since it is different for active and dull markets. A careful observercan develop an intuitive feeling of “too short” and “too long.” When a stock makes several consecutive consolidations and breakouts,each next step of the ladder should be shorter than the previous one.Ideally the length of each next step is between 50 percent and 75 percent of the length of the previous step. If this ratio is less than 50 percent, the trend is accelerating and is likely to approach its end. If it’sbigger than 75 percent, the breakout is more likely to fail. As a rule we consider the second attempt of a break (test of resistanceor support) to be more likely to fail, and the third attempt to be morelikely to succeed.
CHAPTER 13 Trading Market Ranges and Miscellaneous Points
143
In a double-top scenario we look to enter a short position when theprice drops below the bottom located between two tops. The stop isplaced above the top. We do not short the second top itself. In a double-bottom scenario we look to enter a long position when theprice rises above the top located between two lows. The stop is placedbelow the low. We do not buy the second bottom itself. When a stock goes through consolidation and you intend to play thebreak of the consolidation range, avoid entry of the trigger if a stockspikes sharply right into the trigger level. This scenario tends to produce traps rather than valid breakouts. The ideal case is to go slowlyapproaching the trigger level and orderly break. When you select your candidate for a breakout by the narrow-rangemethod discussed earlier in this chapter, make sure it’s not a stock thatby its nature moves in the opposite direction of the market. Sometimescertain sectors act like this; gold stock in the fall of 2002 is an example. If you fail to take this into consideration, you would most likelybuy for such a stock breakout when the market is bouncing, althoughthis is the time for this stock to retreat. When you are looking for an uptrend reversal after a strong move, youwant to see a stock losing the latest support it has formed on its way up.Avoid shorting euphoria itself since it can easily turn out to be a shallow pullback or new consolidation. Rather you want to see a stockpulling back to the support level, bouncing on the decreasing volumewithout making a new high, retreating back to the support, and breaking it. This break is a trigger for a short entry. A similar approach can be used for the reversal of a downtrend. When you are trading a stock that follows NDX movements, superimpose its chart onto that of the NDX to find out how much in sync theyare. The best trading candidates are those that move with a slight lagbecause this allows using the NDX as the leading indicator. The process of finding the leading indicator can consist of two steps,including the sector index. It makes the selection of trading candidatesand timing of entries and exits more fine-tuned, although somewhatmore cumbersome. Some of the most popular are the Semiconductorindex (SOX) and the Biotechnology index (BTK).
This page intentionally left blank.
PART THREE
Practical Examples
I
n Part Three, we provide a number of practical examples, which aretrades taken from the actual experiences of both authors and dissected toillustrate the decision-making process.In those cases in which the trade was explained to and traded by ourstudents, you will see comments such as “I would” rather than “I did.”The trades that are presented here were made over a number ofyears, so you will see fractions on some of them and decimals on others.We decided to leave each trade as it was so as not to distort perception.This demonstrates that no matter what changes are being made in technology, the core of the market remains the same, and the principles basedon human reactions remain intact. Different time frames are used in thecharts, from 1 minute and higher, to show that traders within any timeframe can apply the principles.You will see that many of the trades were based not only on pure tapereading but also in combination with simple technical analysis. We do notintend to go into depth in those studies. There are plenty of great bookswritten on the subject. Rather our task is to show how you can add tapereading to your favorite indicators in order to deepen your understanding.In the description of the trades, you will see many references to thepsychological issues discussed in Part One. Also, there are some repetitions in applying different tape-reading principles. The authors did thisdeliberately because we want this part to be a way of “putting it alltogether” for both the technical and the psychological side of trading. Wewant each trade to be as finished and as self-contained a review as possible, to show the entire process of a trader’s thinking as events develop inreal time. The repetition of major points that shape up each trade isintended to reinforce the correct approach to any trading situation.145
Copyright © 2004 by GST Captial Group, LLC. Click here for terms of use.
PART THREE Practical Examples
146
EXAMPLE 1
Accumulation and DistributionWe have already discussed distribution/accumulation principles, whichare important because these two principles are often applied by the smartmoney long before the public catches onto this kind of movement. Forexample, on this day, Portal Software (PRSF) had news concerning a contract with AOL. (See Figure EX1.) Forgive me for not rememberingexactly what the news was. I’m a trader, not an investor, so I’m unawareof exactly what it was. The week prior to this day, PRSF was strong—solid uptrends, no really nasty pullbacks, and so forth. These are normallysigns of accumulation from some defined level. Whether this accumulation occurs in anticipation of something or whether it derives from insideknowledge or whatever doesn’t really matter. It is how the accumulationbehaves that we traders watch for. Buying is slow, stable, not many sharp
FIGURE EX1Accumulation and distribution. (RealTick graphics are used with permission of Townsend Analytics, Ltd.)
PART THREE Practical Examples
147
price increases. Pullbacks are shallow and supported. As far as I remember, PRSF didn’t have any news catalyst from the Friday before, so it wastrading maybe in anticipation of the AOL news that was leaked somewhere. Who knows? It could have easily been a major fund or funds wanting to buy it at current levels. The point is that we had a bit of a run, forwhatever reason, into Monday.The AOL news brought outside attention to the stock, meaning thosewho weren’t watching it from Friday’s action now had a reason to watchit. The public was alerted. When stocks are being accumulated, for sometype of event, the next phase is distribution. The principle, “The public isalways the last to know” or “Buy the rumor, sell the news” usually leadsto distribution at some higher level on the day any public attention isdrawn to the stock. Therefore, for PRSF on this day, I was looking for agood, defined range and to have a short setup with expectations that thisday would have a reasonable distribution at high levels. There were morning impressions of the stock showing the strong gap up on the AOL news.Note that I didn’t want to short the gap just because it was up too high orshort it. The stock already made its run; it wouldn’t hold. This is usuallyhow an amateur thinks and often gets killed because of it.I wanted to see a reasonable range defined and to trade from the continuation of either direction, with expectations that I would see the selloff. By defining the ranges, instead of just gambling on some arbitraryfigure, I can bring structure to the trade and review my entries and exits,using reality, not thoughts of “I thought it would. . . .” So with my initialimpression developed, based on the principles of accumulation/distribution, let’s look at the three areas that were tradable.The first area was a long entry based on the open-break trade. Hereis the setup. The stock made an open high of $135/8 and made smalldownticks to $135/16 to $133/8 showing. At this level the support was stillstrong, and nearly $131/2 to $135/8 was showing as some reasonable resistance in the premarket. Had we tested $135/8 and failed, the short setup weplanned to take was a break of $133/8, with a stop at $135/8. I then lookedfor distribution principles to take my stock lower at the open. It didn’tbreak lower because support was strong, the volume was increasing as weapproached the open high of $135/8, and I felt it was a reasonable andfair