Catching A Moving Bus
One of my favorite money-management strategies is to
enter a trade right before it starts to move in my favor. I consider this a
money-management strategy because the time you spend in a position equates to
risk. I believe it’s important to use a time-stop as well as a
conventional stop-loss based on price. In other words, I set a time limit during
which a position has to perform or else it gets liquidated.
So I want the stock to move as soon as possible after entry.
There is a mixture of art and science to doing this, but there are several
things I look for that you may find helpful:
- Pullback or consolidation within a strong trend
- Trading range tightens
- Good support just below the entry zone
- Favorable volume patterns
- Good market dynamics
Here’s a good example of this in Foundry Networks
(
FDRY |
Quote |
Chart |
News |
PowerRating).
Here’s a TradersWire story that pretty much sums up Thursday’s
action:
Foundry Networks (FRDY)
closed still sitting within its four-day range. Volume swelled on its
positive close. A good sign. All this occurs on support just above its
five-week base. FDRY closed at 121 13/16.
On Friday morning the ducks were pretty much lined up and FDRY’s
was swift and decisive.
At the time this is being written FDRY is up 12 5/16 at 134.
Of course, it doesn’t always work out this way. But I believe that if you
don’t just merely set your sights on pattern setups, but also set a goal to time
your entries, you may experience better results with less stress.
Have a great weekend,
Eddie