Here’s A Great Lesson On Why You Should Use Money Management
Why Money Management Is Important
Last night, we looked at Devon Energy
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PowerRating) as one of
our money management examples. To recap, I spoke of taking partial profits on
initial swing move and moving the protective stop on the remaining shares to
breakeven–the same as the entry. This way,
barring overnight gaps, it gives you, at worst, a scratch and a chance of a homerun on the remaining
position. On Thursday, the stock imploded. As you can see, without money
management, this slightly profitable position (overall) would have resulted in a
losing trade.
On Thursday, the Nasdaq opened flat, sold off and recovered
in early trading but then generally worked its way lower for the remainder of
the day. This action has it closing poorly, breaks it out (down) out of its
short-term trading range, and has it closing in on its 200-day moving average.
The S&P put in a similar performance. This action
also has it closing poorly, breaks it out (down) of its trading range.
The March lows, circa 1080, which also corresponds with its
200-day moving average (when/if it gets there), could be a target to the downside here.
So what do we do?
Once again, from a trend
player’s perspective, I’m glad to see the market breaking down out of its
trading range. Now, before you start typing me a nasty gram, as I said last
night, I would have preferred it if it had been to the upside. But,
again, from a momentum player’s perspective, I’m just glad that it’s doing
something.
^Next^
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On the long side, you might want to sit on your hands as
long as the market appears to be in free fall mode.
On the short side, if
you are not already positioned, you might wait to hold off or at least trade at
a reduced size since the market is very oversold. Remain patient. With so many
sectors making new lows/breaking down, we could see a plethora of shorts setting
up soon (on the first bounce).
As far as setups, Monster
Worldwide
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PowerRating), not to be
confused with Monsters Inc.
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PowerRating), is a setup I call a Reversal Gap
Strategy. This occurs when a stock makes a significant new high and then gaps
lower over the next few days (email me if you need the complete rules). My
theory is that those “Johnny-come-latelies” who bought at or near new
highs are now at a loss and may be looking to exit on any additional pain. This
action could accelerate the sell off.
Email Of The Day
“You are actually a very bad writer.”
You think so? Maybe you can learn me how.
“Where are those six words you promised.”
Guess I was a little vague. Quoting my column and numbered
for your convenience:
“Let (1) The (2) Markets (3) Come (4) To (5) You
(6)”
“Hope they take your writing license away.”
Isn’t it obvious? I never applied for nor never got no
writing license.
“Who in the ell are you anyway?”
I’m not sure what an “ell” is.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Now is a good time to get my newest 20-hour CD-ROM course, Dave Landry: The Mentoring Sessions. It’s 20% off for a limited time at TradingMarkets.com. Just
click here to learn
more, or to order.