Time To Make Your Short List
Trail ’em If You Got ’em
As I’ve mentioned in the past, 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 (through the use of trailing stops).
Let’s look Amazon.com
(
AMZN |
Quote |
Chart |
News |
PowerRating), mentioned recently as a potential
short. When we last left off, we were discussing the fact that it has
moved nicely lower (see column archive from Friday 7/16/04) . Partial profits
could (and should) have been taken and the stop was then moved to breakeven. On
Monday, the stock continued lower. The trailing stop on the remaining shares was
then lowered. In this case, to two points below the closing price. This
is appropriate for a short-term trade in a stock of this price and volatility.
Notice that the stock bounced on Tuesday, but so far, did not hit this stop.
Once again, if you’re new to momentum-based swing trading and would like more information on the basics such as trend, entries, and money management, email me and I’ll be happy to send you the primer section from my second book.
On Tuesday, the Nasdaq opened firmer and rallied for a
solid trend day higher.
The S&P didn’t “beeline” higher (like the Naz)
but generally worked its way higher throughout the day.
This action puts it back above its 200-day moving average (the blue line below).
So what do we do? Now that we are finally beginning
to pull back in this downtrend, begin looking for potential shorts. I’m not
seeing too many yet, but would imagine that there will be plethora setting up
soon if the market continues to bounce. Technology in general could be a good
place to look. Outside of tech, retail looks vulnerable. On the long side, focus
on areas in trends that can trade independently of the indices. Now that
they’ve pulled back a bit, the energies and metals & mining could provide
new opportunities here.
As far as setups, Varco International
(
VRC |
Quote |
Chart |
News |
PowerRating), in the
strong energy sector, looks like it has the potential to resume its persistent
uptrend out of a Trend Knockout (TKO)–email me if you need the rules.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. My new 20-hour course is now shipping.
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