If You Want To Be Successful Longer-term, Make Sure You Do This

  • June 17, 2004
  • Dave Landry

Smoke ’em If You Got ’em

Money management–the use of protective stops, trailing
stops, and profit taking–is crucial to your long-term success as a trader. A
simple money management system is to take at least half of your profits
when they are equal to or exceed  your initial risk. You then move you
protective stop on your remaining shares to breakeven. This way, barring overnight
gaps, you have a
“free” position that has the potential to turn into a home run. 

Let’s take a look at
Kmart
(
KMRT |
Quote |
Chart |
News |
PowerRating), mentioned recently. Notice that it has rallied nicely but
gave back much of Thursday’s gains after failing to breakout to new highs. If it
continues to stall (again, barring overnight gaps), the worst you can do is a
breakeven on  your remaining shares. And if it does truly breakout, you
still have a position. 

On Thursday, the Nasdaq opened weak and initially continued
lower. It found its low in early trading and chopped its way sideways to higher
for the remainder of the day. So far, it remains above its 50-day and 200-day moving averages. 
It also remains above short-term support (the June lows). 

The S&P put in a similar performance. So far, it too remains
above its 50-day and 200-day moving average.  

So what do we do?  Overall, the market
continues to hang in there. So far, the indices continue to hold at or above most
shorter-term and longer-term moving averages. However, as mentioned ad
nauseam, I remain concerned about this markets inability to follow through for
more than a day or so. Adding to those concerns is Thursday’s breakdown in the
semis. Yes, we can have a bull market without them–but it sure would be nice if
they gave their support. All things considered, I still think that we should
continue to trade at a reduced size. On the long side, so far, Internet and
retail still look like they have potential. However, wait for entries in light
of recent weakness. On the short side, biotech still looks poised to resume its recent slide out
of a pullback. If the semis continue to drop, we could see setups there
soon too (on the first pullback). 

As far as setups, Sina Corp.
(
SINA |
Quote |
Chart |
News |
PowerRating), mentioned
recently and in the
aforementioned strong Internet sector, looks like it has the potential to rally
out of a pattern I call a Trend Pivot Pullback (as usual, email me if you need
the rules). 

 

Best of luck with your trading on Friday!

Dave Landry

dave@davelandry.com

P.S. Reminder: Protective stops on every trade!

P.P.S. My new 20-hour course is now shipping.
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