How To Manage A Winning Position
Trail ’em If You Got ’emÂ
On Tuesday, I discussed taking partial profits (a) and
moving your stop to breakeven (b)-the same as the entry, on Healthnet
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PowerRating),
a stock mentioned recently. This point is that, barring overnight gaps, you essentially have a
“free” position with the potential of it becoming a homerun. The
rest of the position should be managed with trailing stops. There are two ways of doing this.
The stop could be trailed on a point basis (e.g., x points below
the closing price) or on a pattern basis (e.g., below recent support). For
purposes of our discussion, let’s assume that we will use a little bit of
both-trail the stop below but not right below recent minor
support. This way, if support is tested but not broken decisively (e.g., a probe
by stop hunters), you won’t get knocked out prematurely (assuming of course the
trend resumes after a successful test). As usual, email me if you have any
questions.
Looking to the indices, on Wednesday, the Nasdaq opened
firmer and rallied for a solid trend day higher. This action has it closing
well, at new closing highs for the year, and just below multiple tops.
The S&P also generally worked its way higher throughout
the day but wasn’t as impressive as the Nasdaq. This action takes out minor resistance
and puts it towards the middle of its trading range.
Looking to the sectors, the extension from Tuesday’s turnaround
continued to improve the outlook in many groups. The HMOs were up sharply. This
action suggests that they are poised to make new highs. Telecom finished at
52-week highs. Regional airlines ended flat but remain in a solid uptrend.
However, some sectors still remain questionable in spite of Wednesday’s rally.
Biotech and to a lesser extent the homebuilders still look like they are in the
process of forming tops. Retail and Internet finished higher but so far, still
remain stuck in sideways high-level trading ranges.
 So what do we do? In spite of the great
action in the indices, my database generated very few meaningful setups on the
long side. This is normally a sign for me to manage existing positions and avoid
taking on new ones. The fact that this comes right before a holiday shortened
day and a long holiday weekend helps to make this decision easier. Therefore,
once again, probably the best course of action is to allow the market to prove
itself. If it breaks out to new highs, then longs will be the obvious
play. If it rolls back over, then transitional shorts should be considered. And,
if it just stays stuck in a trading range, then you might want to wait for
better days.
No setups tonight.Â
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….. I still feel that your book is the best book on the subject and
offers me the best methodology for swing trading. In short, your method is outstanding….”
Michael M.
