Believe In What You See
Each evening we focus
on the most interesting aspects for the upcoming trading
day. The comments are based on observations of the nightly
updates of the Stocks/Sectors and Market Bias pages. They
are provided for educational purposes only and are not
intended to be direct trading advice. Also, keep in mind
that these remarks are made up to 12 hours in advance of the
market’s opening. Therefore, overnight events may alter the
outcome of these observations.
On
Friday, the Nasdaq opened on its high (a) and closed on its low (b) for a solid
trend day lower.
The
old lows (c) look like a chip shot from here.
On Thursday night, I talked about why we should avoid the
euphoria of the news and trade the charts. Friday gave us a great example of why
this is so important. Believe in what you see and not in what you believe.
Where do we
go from here? Obviously, the trend remains down so there’s still no need to run
out and get too long. Also, it’s so volatile in here, you might want to continue
to keep it light until things settle down.
Speaking of keeping it light, today I spoke with a fellow
trader who was losing money in this environment, yet felt compelled to trade
through it. When you’re getting burned, first try pulling your face out of the
fire. You can’t lose any money by being out of the market. And, if you’re
worried about missing opportunities, I can assure you that the markets will be
there for a long time. Make sure you are, too.
Looking to potential setups, Burlington
Resources
(
BR |
Quote |
Chart |
News |
PowerRating), mentioned Thursday night, began rallying out of a pullback on
Friday. This action suggests that its uptrend remains intact.
Astoria Financial
(
ASFC |
Quote |
Chart |
News |
PowerRating), on the Pullbacks
Off Highs List, closed poorly on Friday but still looks like it has the
potential to resume its strong uptrend. Just wait for follow-through (i.e., an
entry).
On the short side, Quest Software
(
QWST |
Quote |
Chart |
News |
PowerRating),
on the Pullbacks
Off Lows List, looks poised to resume its downtrend out of an inverted
cup-and-handle-like formation.
It’s been a week or so since I’ve done a walk-through on
entries, initial protective stops, and simple money management. Therefore, let’s
take a look at a stock from last night’s outlook. As usual, keep in mind that
this is for educational purposes only and is not to suggest that you should
trade stocks mentioned in the outlook and/or in the manner described.
Amerada Hess
(
AHC |
Quote |
Chart |
News |
PowerRating) set up as a Bow
Tie (a) and first pullback Thursday night. This gave us an entry at 70 3/8,
1/16th above Thursday’s high good for Friday. The entry triggers on Friday (b)
as the stock trades at 70 3/8. An initial protective stop is placed 1/16 below
the low of the setup at 68 15/16 (c). This gives us an initial risk of 1 7/16
and an initial profit target of 71 13/16 (1 7/16 + the entry of 70 3/8). Our
target is hit (d) and we exit half of our position. We then immediately move our
protective stop to near breakeven–the same as the entry (b). Barring
overnight gaps, this gives us, at worst, a breakeven trade on the remaining
shares with the potential for a home run.
Best
of luck with your trading on Monday!
P.S. Reminder:
Protective stops on every trade!
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