Keep It Simple

  • June 13, 2001
  • Eddie Kwong

As you know, weak
stocks often pull back from their lows before resuming their downtrend, and
pullbacks are a favorite trading strategy of daytraders. It is a simple method.
You will place a sell order as soon as a stock trades below the low of the
previous bar. Of course, this strategy can be applied to both daily and intraday
charts.

Here is a daily chart of Reliant Energy (REI)
as of the close of 6/12/01. As you can clearly see, the stock is pulling back
from the June 6 low and looks poised to resume its downtrend. My plan is to sell
the issue as soon as it trades below the June 12 low.

Let’s see how it worked out. The chart below is a five-minute chart from today’s
session (6/13/01). The red horizontal line is the level of yesterday’s low. At
9:50 a.m., the stock fell below the red line, and a sell was triggered. By 10:40
a.m., REI was trading more than 4 points lower. Indeed, it was a great trade.

I love a simple trading method, especially when it works out.

Eddie