What Friday’s action tells me about today
Smoke ’em If You Got ’emÂ
As I’ve mentioned in the past: Money management–the use of protective stops, trailing stops, and profit taking–is crucial to your long-term success as a trader. A simple money management system is to take at least half of your profits when they are equal to or exceed your initial risk. You then move you protective stop on your remaining shares to breakeven. This way, barring overnight gaps, you have a “free” position that has the potential to turn into a homerun (through the use of trailing stops).
Following the rules outlined in my swing trading primer (email me if you need a copy), let’s look at recently mentioned
Novellus Systems
(
NVLS |
Quote |
Chart |
News |
PowerRating).
Notice that the triggers an entry (from an Explosion Gap Pivot–as usual, email me if you need the rules to anything mentioned in this column). Although it didn’t do much on the first day, the next day the stock gapped higher and continued higher to hit the initial profit target. The protective stop is then trailed up to breakeven–the same as the entry.Â
I’ll follow up on this one (good, bad, or ugly) in this forum and in my weekly A/V lessons.Â
height=”311″>On Friday, the Nasdaq put in a solid rally in early trading but soon found its high and then traded mostly sideways to lower for the rest of the day.
Nevertheless, it still was able to hold on to nearly a 1% gain. Â
height=”311″>The S&P put in a somewhat similar performance. Â
height=”311″>So What Do We Do?
I think Friday’s action is key. The fact that the market put in a decent rally ahead of the weekend suggests that there are some buyers out there. However, I think we can wait on establishing new positions until the market proves itself further. If this truly is a resumption of the bull market, then it should easily be able to make new highs.Â
As far as setups, while you’re playing “wait and see” with the market, it’s usually a good idea to look to commodity-related areas since they can often trade independently of the indices. These include gold, metals & mining, and energies. Although all are in strong uptrends, they are also overbought and due to pull back. Therefore, trail and scale on existing positions here vs. initiating new ones.Â
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. If you would like a free trial to my trading service, click
here.
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