Think!
Sometimes you spot a pattern that is unique to an
individual stock. Nobody has ever classified it in a textbook. No infomercial
huckster has trademarked a name for it.Â
But an experienced trader who studies charts develops a knack for detecting
subtle short-lived patterns that can be useful as long as they remain intact. A
case of this is currently unfolding in Inktomi
(
INKT |
Quote |
Chart |
News |
PowerRating).
I have circled four instances in which INKT plunged to its
200-day moving average and closed at the low of a large-range day. Closes at the
lows of large-range days are considered bearish by some technical traders. They
call it “closing poorly.” Yet, after each of the three instances prior
to the one that is currently unfolding as I write this, INKT managed to put in a
tradable bounce. Commonsense, not mechanical knee-jerking must reign in the mind
of the professional trader. Often, conflicting factors must be weighed. In this case you had institutional buying at the 200-day moving average weighing into
your analysis.
Actually, this is a pretty simple example, but there are many cases
which are far more ambiguous, which the thinking trader must consider from every
angle. When studying charts, it’s a good idea to spend some time looking beyond
the canned patterns that everybody knows about. Instead, practice looking for
repeating price-and-volume patterns that are unique to an individual stock.
Until tomorrow,
Eddie