Quasimodo, Pavlov’s Dog
Each evening we focus
on the most interesting aspects for the upcoming trading
day. The comments are based on observations of the nightly
updates of the Stocks/Sectors and Market Bias pages. They
are provided for educational purposes only and are not
intended to be direct trading advice. Also, keep in mind
that these remarks are made up to 12 hours in advance of the
markets opening. Therefore, overnight events may alter the
outcome of these observations.
Last summer, I was offered the
opportunity to work with Kevin Haggerty at his Trading
With The Generals Seminar. I jumped at the chance and was glad that I did.
His
knowledge of the markets is truly amazing. If you are interested in taking your
trading to the next level, you should consider his upcoming seminar. Be warned
though, it’s an advanced workshop. Make sure you have the basics down and have been trading actively for
at least two years.
On
Friday, the Nasdaq opened flat and began to sell off. It found its low early on
and mounted an impressive triple digit rally. However, it gave up most of these
gains by early afternoon. The rest of the day it chopped sideways.
Friday’s action has the Nasdaq stalling out
after probing above recent resistance (a) and a well-watched down trend line (b).
So where does this leave us? The Nasdaq is behaving like a
market in transition mode. It reverses when something “obvious” like the breaking
of a down trend line happens. It seems like no one wants to be left
behind if this is the low, but everyone is still skittish in case it is not. We may
be putting in a bottom here, but I don’t think anyone will ring a bell when its
all clear. It looks like we’re in for choppy waters for now.
Tonight (Friday) I had difficulty finding setups on the
long side. I kept trying to find something and then finally thought, why try so
hard? Let the database talk.
With that said, SEI Corp.
(
SEIC |
Quote |
Chart |
News |
PowerRating), all on the Pullbacks
Off Lows List, look poised to resume its downtrend out of a Bow
Tie (a).
Other, Pullbacks
Off Lows List of interest include Macromedia
(
MACR |
Quote |
Chart |
News |
PowerRating) which looks poised
to resume its downtrend out of a four-bar pullback from lows and Mylan Labs
(
MYL |
Quote |
Chart |
News |
PowerRating)
which is consolidating at lower levels and looks poised to break lower.
Random Musings
On Money Management
As you know, one
of my favorite money management techniques is to sell half of my position as
soon as my profits exceed my initial risk and then move my stop to breakeven on
my remaining shares. If you’re new to this column, you might want to read the recent
archives (on the right side of this page) and my money
management articles under Traders Lessons before reading any further here.
A common question
about this “2-For-1″* money management is “By setting a profit
target to the same as the initial risk, doesn’t it have a negative expectancy?
After all, you have a full position and you are only taking profits on half and
then moving your stop to breakeven. You are essentially risking two units to
make one.” This is a very valid question. My answer is, yes, if
all the profit you ever made were on those half shares and then you were stopped
out on the remainder, then it would have a negative expectancy. In other
words, it wouldn’t work because you are risking twice as much as you are making. The
reason I believe it does work is that you occasionally make decent
profits on your remaining shares. In trading, the results are skewed. You win
some, you lose some, and you hope to protect your capital until you can capture large gains.
That is the essence of this simple money
management technique. I think one reason that many are asking this
question is due to the recent choppy nature of the markets.
Best
of luck with your trading on Tuesday!
P.S. Reminder:
Protective stops on every trade!
*Originally published by Larry Connors in Connors
On Advanced Trading.
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B.C.,
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night’s free book movie challenge.
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