You’ll Only Hurt The Ballclub

  • May 22, 2002
  • Duke Heberlein

I’m Crash Davis, your new catcher,
and you just got lesson number one. Don’t think, you’ll only hurt the ballclub.

Kevin Costner to Tim Robbins in the movie “Bull
Durham”

Finding a pattern and its entry point are the easy part of trading. Once you
do, the toughest part of trading is at hand, managing the trade, and deciding
when and where to take profits if it moves in your favor.

 


5-16-2002


11:05:16

 Anglogold (AU)
is trading in a triangle near the level of its recent highs. AU is trading
up 0.89 at 21.19 and holds a

3-month relative strength rank of 98 alongside an uptrending ADX of 44 from
TradingMarkets.com.

 

 

The stock breaks out the following day, and continues to run.

 

 

This is the point of a trade that vexes many novice and
beginning traders. Now what? The answer, believe it or not, is rather simple and
not at all esoteric or mystical. On the breakout day, or the next morning’s
open, sell half the position. That one act alone will all but assure you of a
profitable trade. The second part of money management is to move your stop on
the remaining shares to breakeven, or maybe a little above to offset the
commissions. Continue to trail the stop higher as the position moves in your
favor. I often use a two-bar trailing stop, which would be placed at the low of
yesterday’s bar if the low of today stays where it is on the chart above.

The beauty of this method is that it allows you to get out of
your own way, and let the market take you out of the trade. Are you smarter than
the market? I know I am not. I would venture a guess that 99.44% of you out
there are not either. That sliver of a percentage that are, this column is not
for you. This trade could run for two more weeks. How do we know that? We don’t.
But as Kevin Haggerty said last weekend, “You can’t get on the train if you
don’t buy a ticket”. The ticket is the trade, combined with trailing stops.
Don’t think, and don’t try to outsmart Mr. Market. He does not care what you
think, and he is smarter than you.

Until tomorrow,

Duke