Stack The Odds
Duke Heberlein is
on vacation. This was written by Michael Brooks.
The “Applet Analysis Alerts” are designed to cherry pick some of
the more promising stocks scrolling across the screen in TradersWire. Often, we
will try to take a look at the bigger picture and give you a list of stocks
within a sector that may be poised to move. In some cases, we may focus on an individual
stock that has a promising pattern. Below is an example of an individual stock
coming across TradersWire which had some promising technical characteristics
that might warrant a short sale. Take a look at the following post from this
morning:
10:28:08
Applet
Analysis Alert
USA Interactive (USAI)
retouches 200-day moving average. Swingers may want to put this one
on the watch list. USAI dumped heavy three days ago on strong volume.
This stock has climbed back to the 200-day MA on very low volume and so far
today, it is forming a reversal bar. USAI may offer some more downside
over the next few days. Aggressive traders could consider an entry below
today’s low and more conservative traders may want to see if today’s lows
can be taken out on Friday.
When analyzing a particular stock you want to always be on the lookout for as
many clues as possible that will help swing the odds in your favor. For USAI the odds point in the direction of a short sale. We have the stock
moving down on heavy volume below its 200-day moving average. USAI then moves
higher over the past three days on comparatively lighter volume. Currently, USAI
is revisiting the 200-day MA and appears to be stalling (often, the first time a
stock pulls back to the 200-MA, after going below, it will fail and pull back).
Finally, USAI opened and moved higher only to pullback and base below the open.
This is setting up a reversal bar on the daily (so far).
So how would you trade this pattern? There is no one correct answer. An
aggressive trader might take a break of the current intraday lows to enter a
short. A more conservative trader might put it on their watch list and wait for
a break below today’s low on Friday. The trade off is a price premium. The more
you need to know, the more it will cost you in terms of your fill price. In a
sense, you are paying for additional information.
Will this trade work? Nobody living on this planet can give you that answer.
As a trader, you need to think in probabilities. The odds in each of the
trades you take should favor a particular direction. If you cannot clearly
define which direction is favored, then don’t take the trade. Over time, you will find that going with the odds and letting probability work for you will consistently
add equity to your trading account.
Have a great trading day!