Nerve

June 15, 2001
Loren Fleckenstein

A number of the high relative strength
breakout stocks continue to hold up well despite the ongoing pullback in the
major indexes. This is because these leaders for the most part do not come from
the big-cap tech arena which so often has fooled the perma bulls into buying the
bottoms.

Still, keep your eyes on your initial and trailing
stops and look for occasions to take partial or full profits. As I’ve said before, this is the time when you cannot be complacent, but you also must keep your nerve. Watch your stocks. Don’t let the indexes and media idiots spook you.

Serologicals
(
SERO |
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Chart |
News |
PowerRating) is an example
of the kind of behavior I like to see — a combination of consolidation above
the old base, including the digestion of a mini post-breakout correction, along
with a rising relative strength line.

Metro One Telecommunications
(
MTON |
Quote |
Chart |
News |
PowerRating)
found sponsorship Friday to rebound to the upper end of the trading range
despite the carnage elsewhere in telecom. (Check out the chart of the Telecom
HOLDR
(
TTH |
Quote |
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News |
PowerRating) near the end of this commentary.) There’s a battle going on here
between supply and demand, though. If you’re in, watch this one like a hawk.

Renaissance Learning
(
RLRN |
Quote |
Chart |
News |
PowerRating) may
be setting up for another run but still looks a trifle extended here. The stock
needs to put in some more time. Preferably, I’d like to see the stock ease lower
here on thin volume before finding a pivotal point.

Manor Care
(
HCR |
Quote |
Chart |
News |
PowerRating), which was on our
base-building radar, broke out Friday. Volume was mediocre but did expand above
the prior session’s level.

At the end of this commentary is where
I remind you to practice sound money management on all your trades. Sound money
management, as well as having the nerve to pull the trigger on an
entry, is partly a function of sound trading psychology. In this regard, we can
learn a great deal from futurees and options traders. I believe derivative traders offer some of the
best education on money management and psychological discipline. If you missed
it, I recommend you read Fibonacci wizard
Carolyn Boroden‘s commentary Thursday on trading psychology. (href=”/.site/eminis/commentary/cbpersp/06122001-15837.cfm”>Click
here.) Whether you trade off patterns, indicators, Fib #s or the rise
or fall of hemlines, stocks, options, futures or exchange-traded funds, the
lessons of psychology are consistent across disciplines and security types.

I was once a big skeptic of trading
applications of ratios derived from the Fibonacci summation series. But after I
came to TradingMarkets, seeing great traders like Carolyn and Kevin
Haggerty turn out consistently successful trades using this
discipline, and studied some of Carolyn’s technique, I became a believer. If
this intrigues you, be sure to keep an eye out for Carolyn’s and my forthcoming
lesson on Fibonacci levels within classic intermediate-term patterns. However,
be careful in adding any new wrinkles to your own technique. Make sure you are
already doing what you’re doing well, and understand why it works, before
incorporating new factors.Â

For a tutorial on Carolyn’s Fibonacci
cluster method, visit the Carolyn
Boroden page in Trading Subscriptions.com and scroll down to the link
to the tutorial file on her services. Although intended for clients who
subscribe to her service for high probability price cluster zones, the tutorial
shares a lot of valuable education for free to anyone interested in this trading
method.

All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business.

Nerve

BUY THE FEAR, SELL THE GREED

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