How to stack the odds in your favor
Dave Landry is principal of Sentive Trading, a money management firm, and a
principal of Harvest Capital Management. Mr. Landry is the author of two top
selling books,
>Dave Landry’s 10 Best Swing Trader Patterns And Strategies and
>Dave Landry On Swing Trading.
If you would like a free trial to Dave’s Nightly Swing Trading Alerts Report
What makes a great setup?
A stock worthy of trading should trade cleanly–not in a wide-and-loose manner.
Ideally, the momentum should be accelerating. And, the stock should be set up
with some sort of conceptually correct pattern.Â
The market action should agree. If the market is in an uptrend,
then you should be focusing on potential longs. Conversely, if the market
is in a downtrend, you should be focusing on potential shorts.Â
And finally, the sector action should also confirm–it too should be trending
in the same direction as the stock.Â
Let’s take a look a Neurocrine Biosciences
(
NBIX |
Quote |
Chart |
News |
PowerRating)Â a stock
mentioned in my trading service and on the same day in my interactive
presentation (email me if you need a free link). Notice the stock was in a
“clean” and persistent uptrend (1). The uptrend begins to accelerate
(2). The stock sets up as a pullback (3). Also of interest is the fact that the
stock “tailed” lower (4) but reversed to close well. In the spirit of
the Trend Knockout, this action likely has “knocked out” weak hands
and could have trapped in eager shorts. This makes the setup even more
bullish.Â
Now let’s look at the sector. Notice that biotech as in an uptrend and making
new multi-month highs (actually multi-year highs).Â
Notice that the market itself is also “in gear”–in an uptrend and
rallying to multi-month highs.
Now that we have all three pieces: Market/Sector/Setup, let’s look at what
happened:
The market continued to rally.Â
Biotech continued to rally.Â
And, the stock resumed its rally:Â
Does it always work this well? Of course not! However, as you can see, it
often pays to put the odds in your favor.Â
On Friday, the Nasdaq opened stronger but found its high in early
trading and began to sell off. It found its low by mid-morning and then traded sideways for the
remainder of the day. It did manage to close in the plus column. This was enough
to keep it at new highs for the year.Â
The S&P also closed at new highs for the year. Â
So what do we do? If you’re a trend follower, you can’t argue
with a market that is making new highs. Hopefully, it’ll keep on doing this. And
if it does, look to get aggressive on the buy side on the first pullback.
No setups tonight (Friday). We should see plenty of new setups if the market
follows through and then pulls back.Â
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. If you would like a free
trial to my trading service, click
here.