HK possed the question:
You wrote about retracement to enter a trade. It seems to me that sometimes you entered a trade without waiting for a retracement. What are your criteria in coming to such a decision ?
First, let's make some rules, so we are able to act witout hesitation, rather than by art or gut feeling.
1. Avoid overextended stocks. If you wait a few days, you may see a pull back (for bullish stocks) or a dead cat bounce (in a bearish stock). Overextended stocks may be those who had a strong drop or jump (arbitrarily >20%). BUT the critical qualification of overextended comes from oscillators or Elliott wave analysis. Both RIMM and RHAT made >20% moves
http://finance.yahoo.com/q/cq?d=e&s=RHAT%2c+RIMM
So why did I try to jump in early on RHAT, if I avoided RIMM???
http://stockcharts.com/def/servlet/SC.web?c=RHAT,uu[w,a]daclyyay[da][pb50!b200!f][vc60][iUa12,26,9!Lp14,3,3]&pref=G
2. Is there room for further movement? If you look at RHAT's weekly chart, it looks like it is going to test the previous high at 29.06. PETM and PALM seem to have room to go down too when I picked them. PETM is now at the very bottom of the oscillator so I exited the trade (I might reenter). PALM has plenty of downside potential too. When FDX triggered my system, it was half way from the oversold condition in the stochastics oscillator. Now it is at the top, but I have been increasing my exit point (contingency order)
http://stockcharts.com/def/servlet/SC.web?c=RHAT,uu%5Bw,a%5Dwaclyyay%5Bdf%5D%5Bpb10!b40!f%5D%5Bvc60%5D%5BiUl14!Lp14,3,3%5D&pref=G
3. Always prefer leaders to the upside. FDX is a winner.
4. When Ssocks fall strongly, it is usually due to a panic sell, so a bounce usually follows. Observe carefully this chart on DE, this is very typical of what I expect on a downtrending stock:
http://stockcharts.com/def/servlet/SC.web?c=DE,uu[w,a]daclyyay[db][pb50!b200!f][vc60][iUa12,26,9!Lp14,3,3]&pref=G
5. When in doubt, look at the Elliott wave analysis. There is no point in entering stocks that are at the top. My most successful trades have usually interrupted a long-term trend. Take AAPL in 2003 and AMLN just last month. These you can enter and exit and then enter again.
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8 comments:
Juan,
So I am awaiting a pullback in the three Stocks that I am in, DE, DBD and AMLN, to perhaps take a profit.
Currently on DE
Recent low $59.44, recent high $72.97
23.6% = $62.61
38.2% = $64.68
50.0% = $66.24
61.8% = $67.80
DE current Stock Price is $60.60
Juan your current Stop limit loss is at $64.30
Currently on DBD
Recent low , recent high $48.08
23.6% = $37.08
38.2% = $39.43
50.0% = $41.08
61.8% = $42.79
DBD current Stock Price is $34.42
Varum stated a stop loss at the weekend (24/25 Sept 2005) on “DBD = Get out if exceed 38.15”. The stop loss should now be set at $37.08
Currently on AMLN
Recent low $18.97, recent high $35.01
23.6% = $31.088
38.2% = $28.84
50.0% = $26.99
61.8% = $25.15
AMLN current Stock Price is $34.60
Juan your current Stop limit loss on AMLN is at $31.75, up from $29.85
I am awaiting a pullback on FDX, PALM, RIMM and RHAT to perhaps enter the trades.
Currently on FDX
Recent low $76.84, recent high $87.18
23.6% = $84.65
38.2% = $83.32
50.0% = $81.95
61.8% = $80.807
FDX current Stock Price is $87.01
Currently on PALM
Recent low $27.48, recent high $37.25
23.6% = $30.02
38.2% = Between $31.31 and $31.44.
50.0% = $32.47
61.8% = $33.63
PALM current Stock Price is $28.12
Currently on RIMM
Recent low $68.207 , recent high $82.46
23.6% = $71.66
38.2% = $73.82
50.0% = $75.33
61.8% = $76.845
RIMM current Stock Price is $70.00
Currently on RHAT
Recent low $13.59 , recent high $21.546
23.6% = $19.69
38.2% = $18.53
50.0% = $17.63
61.8% = $16.62
RHAT current Stock Price is $21.44
Please note all prices have been found by my use of Metastock 9 and I can make mistakes.
Displayed to further the interesting discussions.
For DBD, how far can this go down? On the 8th August 2005, this stock had nearly rallied back up to $50, after two previous sharp falls earlier in the year. On the last two occasions, the Stock went sideways after the 20th April 2005 and although the DBD dipped slightly further to $47.61, it went sideways to the end of June 2005, almost managing a 38.2% retracement to $51.37.
On the 30th June 2005, another fall saw it retrace to the 61.8 retracement line before slipping back to the low on the 30th June 2005, before crashing down on the 21st September 2005. This time it hasn’t gone sideways it has has gone down further with volumes of over 1 million.
Using the high on the 7th April 2005 and placing the 61.8% retracement on the low of the day of the large fall on the 20th April 2005, I can get a fibonacci projection at $33.62.
Using the high on the 1st September 2005 and placing the 23.6% retracement on the low of the day of the large fall on the 21st September, I can get a fibonacci projection at $33.62.
$33.62 is exactly the same point, which may or may not form some support to DBD, but if it goes through, there is perhaps further ‘panic’, in this Stock.
The important thing about stop losses is not the accuracy of your calculations, as it is to establish a discipline. In my experience we often feel guilty for exiting trades too soon or too late, or for not exiting at all, or for missing out on a great oportunity. All of this makes trading an agony when it is suppose to be fun. Look back at our trading and see not the individual trades but the % gain. That gain has only been possible with discipline. We have had some losers, but not enough to slow down our gains too much. This is because we have been able to exit the trades and not look back.
It is important that you de-focus of individual trades, and learn to set your stop losses with your TA software and trust it. My system is suppose to be good for those who only want to spend 1hr/day in their trading. So this is the best we can do with it. Let go of control! and enjoy!
Juan,
Thanks for your recommendation on books and previous comments. I will start reading Murphy's book.
I am ok with RHAT not with RIMM. RIMM's volatility has always been high. Bit nervous trading it. It is just me, being nervous.
AKAM and NU triggered on Friday. I am ok with AKAM
For PALM I have a real trade on. I have the first line of resistance @26.57 which is 1.618 Fib Ratio. I will exit if Stochastics slows down. Looks like slowing down.
Overall market looks very stuborn and choppy on the bullish side. I am still bearish overall
Fortitude,
I was paper trading for DBD. I would have got out with a stop loss. I would have missed the potentail growth. Looking retrospectively I would have got out @3.40. Current bid and ask is 3.6-4.2
This is one of my problems. I know you need to run with your profits and cut short your loss. It would have been the reverse on DBD.
If AKAM stays above 15.30 previous resistance for the first hour I will enter the trade.
I work full time. So sorry if I dont respond fast during weekdays.
AKAM looks like a good one to me. I am committed to RHAT for the account we are discussing here, but I will open a position on AKAM in another account.
Varun,
RE: “I work full time. So sorry if I dont respond fast during weekdays.”
The fact you reply at all is appreciated by me. **Smiles**
RE: “I was paper trading for DBD. I would have got out with a stop loss. I would have missed the potentail growth. Looking retrospectively I would have got out @3.40. Current bid and ask is 3.6-4.2
This is one of my problems. I know you need to run with your profits and cut short your loss. It would have been the reverse on DBD.”
I can see why Juan would not have entered the trade. To be honest I think I have been riding my luck with this one!! I have a StochasticsOscillator on Metastock, which shows two lines, a dotted black one and red one going sideways horizontally. The red one has climbed above the dotted black one, I am exiting on Monday.
RE: “If AKAM stays above 15.30 previous resistance for the first hour I will enter the trade.”
AKAM has PERHAPS another $1 rise in it at the very least if you review the previous recent price surges, 17th March 2005, 26th May 2005. I have a trend line drawn which suggests $17.20, if it goes up to meet it.
Another projection of $16.82, using the 23.6% retracement at the current peak as a guide.
These projestions are a cautious review. I have the dreaded Stochastic Oscillator very high, suggestinga possible change, but ADX is mid range suggesting this trend will continue. So you have to take your pick.
What I do like is the shape of the graph with regards to the 'cup and handle'. Perhaps a very good sign?
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