Don’t Be A Front Runner
I am often asked why I don’t recommend (along with nearly everyone else on the TM
site) “front running” entry points. What I mean here is not entering a position
and then broadcasting it in the chat room or on a message board, AKA the “pump
and dump.” What I am talking about is entering a position without waiting for
“follow through,” or waiting for the stock to trade above the prior high or
under the prior low.
Â
Â
This is a good illustration of the reasons why I wait for
continuation or follow through. Multimedia Games
(
MGAM |
Quote |
Chart |
News |
PowerRating) appeared on
the Nightly Daytrader’s Report Monday night, as it has gapped up with some
momentum and closed in the top part of its range.
Â
Â
However, the stock gets hammered the following day on news of an
adverse ruling against one of the company’s products, and it opens five
points lower than the previous day’s close. This is well beyond my risk
parameters for a trade, as I am sure it is for you as well. While MGAM looked
like a good candidate for a potential trade, simply waiting for follow through
would have caused you no harm. Trying to get in early would have been
disastrous. Have the discipline to always, always, always resist the temptation
to do this when it may strike. The worst thing that could happen to you is that
you may be successful a couple of times doing it. It is only delaying the
inevitable, and sooner or later, you will pay.
Until tomorrow,
Duke