TWI Workshop for April 18

 

Above is the chart from last Friday on Polymedica (PLMD).
When playing pullbacks, we are attempting to profit on the retest of the
previous high, as markets often do. When looking at a pullback for a swing
trade, one of the factors to consider is how far the stock will have to move to
get back to an area of resistance. Here with PLMD, we have a range of almost 4
points to get back to the former high, making it a good candidate for a possible
trade.

 

 

Now take a look at the above chart of Anthem (ATH).
Another pullback but not nearly as much range, just over 1 point. Does this mean
that it won’t make a good trade? No, but you will have to either risk less on
your initial stop, or pass it by because it does not offer at least a 2 to 1
risk to reward ratio. Keep factors like this in mind when seeking out pullback
candidates. It will help you greatly when looking for trades.

PLMD has made a nice run out of the pullback.

 

Why am I a trend follower? Because for the most part any surprises tend to
occur in the same direction as the trend. You never know for certain when they
will happen, but you can get yourself in position to take advantage of them when
they do take place.

 

04-03-2002

11:58:42

The stock continues to make a nice move out of the pattern in
the three succeeding sessions. Note the strong closes each day.

 

 

Tuesday, the stock gaps to the upside on the open and does not
look back.

 

 

This is an example of why I scale out of positions as they
become profitable and use trailing stops on the rest of the shares, letting the
market take me out rather than arbitrarily exiting a swing trade. You will give
a little profit back by doing so, but in the long run you will find yourself
getting gifts like this one, once in a while.

When you put the pieces together, it is not hard to tell where the action
will most likely be. A good case in point was the action of yesterday’s
semiconductor index ($SOX.X).
Yesterday, while everyone was preaching doom and gloom, the index rose off the
intraday low and proceeded to climb up and close near its high for the session.

 

 

Then after the bell, both Novellus (NVLS)
and Texas Instruments (TXN)
report good news, and tech continues to be strong in the after hours trading. It
is not a stretch to see that the momentum in the morning will likely continue.
This gives you a chance to monitor the semis for a possible entry into a stock
that does not gap as much on the open as the rest of the group, then wants to
play catch up when the stock takes out Monday’s high. Varian Semiconductor (VSEA)
does just that.

 

 

Learn to get a bead on the market’s likely behavior, and you
will be way ahead. You will not always be correct, but if you get in the habit
of thinking about how events tend to play out, you will have a better chance of
positioning yourself on the right side, and hence improve your chances of making
money.