Spirits In The Trading World
Pattern setups are great, but one of the things that separates the successful
traders from the unprofitable ones is the ability to distinguish between a
faulty pattern and a pattern that may not fit all the “perfect”
criteria for a particular setup, but is valid. This is what I like to call being
“in the spirit” of a setup: Despite the couple of flaws it may have, it still fits the concept of the reasoning behind the setup.
10:09:13
Reliant Energy (REI)
looks ready to test the June 6 low. The stock is trading below yesterday’s
low at 42.11, down 0.88, and it has a TradingMarkets.com
3-month RS ranking of 21.
One of the analysts profiled Reliant Energy
(
REI |
Quote |
Chart |
News |
PowerRating) in this
morning’s Insights From The War Room.Â
I like the choice this analyst made in picking this one out, as it has
a low RS rating and the stock has a definite trend to the downside. REI is
showing the thrust, pause and pivot back in the underlying direction activity
typical of stock’s behavior within a trend.
When I examined the chart right after I saw the alert, I placed
the moving averages for the Bow Tie on it, and liked what I saw. If you look at
the 10 MA, 20 EMA and 30 EMA on the chart below, you will see that the area of
congestion has thrown them off. They do not roll over as prescribed by the rules
of the setup, actually rising slightly before rolling over, as they are supposed
to. However, as you can see, while the action in the congestion is somewhat
sloppy, the spirit of the Bow Tie is alive and well, and the stock has dropped
more than 4 points today.
This is why looking at charts with your eyes are so important.
Scanning charts with software is great, but in this case if you were looking for
Bow Ties, the computer would have not recognized this one. The market is not
always pat. So use some discretion when examining patterns. When you look at a
chart and it looks good to you, but does not fit all the criteria for a
particular setup, re-examine it and try to determine if the general concept of
the strategy is being met, and you may be on your way to a winning trade.
Until tomorrow,
P.S. To those of you who have sent me emails over the
past week,
thanks for your patience. I will getting out my responses to the rest of you in
the next couple of days.