Reinforcement
In an effort to continue to reinforce
some basic principles in these challenging markets, I wanted to share with you
an e-mail from a reader, and then offer some insights and explanations. The e-mail
reads as follows:
Dave,
IBM: one-minute chart this morning (Monday, April 15
EST).
10:20 – 10:26
10:36 – 10:48
11:00 – 11:13
Is any one of the above a quality setup?
If there is one, at which bar and what price level is the trigger?
Thanks for your help.
The chart below indicates the time frames in which the user suggests the entry
and exit, as noted by points A and B. While it obvious that the trades
did in fact work out, it goes counter to my whole philosophy, trading with the
trend. In the last two trades, the reader is suggesting bottom fishing.
Sure, those trades may work from time to time, but in the long run, it will run
you out of this game. I traded with and knew many "dipsters,"
"safe catchers" and "top callers" during the mania of
1999-2000. They did well, as did I. I never bottom picked or sold short
tops, and it is safe to say that I probably did not make as much money as I
could have. In hindsight, however, it was the best decision of my life.
I reinforced GOOD habits all along, and it has served me well in the
last two years, during which all traders have been put to the test. The
"dipsters" are now out of the game. That strategy does not work in
this market.
The first setup (left hand side of chart A-B) is not a bad setup. It is
in the direction of the trend. My preference would have been to wait for
a pullback before going long. In this case, IBM had just moved up almost
30 cents. That is not to say it could not have gone higher, it did, but I like
to establish a position after it consolidates at a support or resistance area.
The second chart illustrates what I consider a far more prudent strategy.
I can tell you from experience that when I place a trade that I know is with
the trend, I am very clear headed with little apprehension, other than the
adrenalin rush. In contrast, when I place a trade that I know violates
this simple rule, I am anxious and certainly not thinking clearly. This
typically will result in a loss or a scratch. Every trade you place
should be with complete confidence. If it is not, you have yet to prove
to yourself/subconscious that this trade meets your trading parameters.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1146 (confluence) | 1448-49 (confluence) |
| 1138 | 1435 |
| 1130-32 | 1428 |
| 1127 | 1416 |
| 1116-17 | 1401 |
| 1111 | 1386 |
| 1098 | 1363 |
On Tuesday, the last piece of the four-part series on Single
Stock Futures (SSFs) will appear. his installment will discuss some
of the strategies I plan to employ. These products have suddenly opened up
several more approaches that will not only complement my existing style, but
also offer a few stand-alone strategies. Click
here to see the first 3 installments.
As always, feel free to send me your comments and
questions. See you in TradersWire.