It’s the sitting that makes the money
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
at=st”>click here or call 888-484-8220 ext. 1
Should You Sit Tight Or Try To Avoid Adverse Market Moves?
“Hey Dave, I know the market is going to rally,
so I’m going to exit RIO (and other shorts). Whadda ya think?”
Before I answer that, let’s take a step back. As I’ve mentioned over and
over:Â 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 homerun (through the use of trailing
stops).
Now, let’s take a look at Companhia Vale Do Rio Doce
(
RIO |
Quote |
Chart |
News |
PowerRating). Following
the rules described above (and using profit targets and stops as outlined in my
Swing Trading Primer–email me if you need a copy), the stock is entered (1),
partial profits are taken (2), and the stop is then tightened to breakeven
(3).Â
So what do you do now that you know the market will rally?
Nothing!–you wait. Otherwise, you won’t be there if the position
turns into a homerun. In fact, if you always exit at the first signs of
adversity, you’ll NEVER catch a homerun. As Livermore said many years ago,
“It’s the sitting that makes the money.”
Housekeeping
I’m a little behind in emails but hope to catch up soon.
On Friday, the Nasdaq opened firmer but soon began to sell off. It
found its low by mid-morning and then began to rally. It corrected around
mid-day but then resumed its rally late in the day.Â
The S&P put in a somewhat similar performance. Â
So what do we do? The indices are now in bona downtrends. If you don’t
believe, check out the statistically linear regression 3rd derivative arrows
drawn above. Okay, I’ll admit it, I had me kid draw them. Seriously, the market
only appears to be correcting from an oversold condition. Said alternatively,
it’s pulling back. Therefore, begin keeping an eye out for setups on the
short side.Â
No setups tonight. Remain patient. If the market continues to pull
back, we should see a plethora of shorts setting up early next week.
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.