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A key reversal day on an uptrending stock or commodity is where a stock
hits a new high yesterday, Goes higher today and then closes today below
yesterdays low. The opposite is true for a key reversal day in a
downtrending stock.
I'll give a tip to those looking at commodities: I look for a commodity
that is downtrending to establish a base. Then if that base is broken on
the downside I watch very carefully the day after the break down. If that
commodity begins to turn the second day I buy. You can do the same with
an uptrending commodity but of course you look for an upside breakout than
won't hold the second day and sell.
The rational is very simple. It is highly probable that the breakdown or
break out is the result of the floor traders hitting the stops. If there
is no followthrough it is likely the situation will reverse direction.
When I first started I tried using stops to control my risk. Didn't make
any money. I decided that that wasn't the way to make money so I stopped
using stops. I then started making money in commodities. At the time I
was only trading a $10,000 account so the risk I was taking was
substantial. Before anyone else tries this you better do some thinking
about your trading skills, you ability to handle loss, your overall
financial situation, ect. You sure don't want to risk the rent money on
commodities.
As I built up my account I found out that the more money I had in my
account the easier it was to make money. The reason is very simple. I
could use much better money management when I had more money. There is
not a lot of money management you can do with $10,000. With that amount
you can only trade 1 contract at a time. With a large account you can
spread your risk among several positions and you can take meaningful
positions with only risking a small portion of your account. Presently my
maximum position in any one commodity is 10 contracts. I don't go out and
buy 10 contracts at once. I scale in and if I hit the trend right will
continually sell on spurts and buy on dips keeping a maximum position of
10. By using good money management I reduce my risk.
Someone else wrote an excellent post on money management recently. Money
management is the key to market success.
Bob Doeden
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Harley Meyer wrote:
> I had posted this guestion before. No reply so again. Does anyone know
> how the 'key reversal day' is defined?
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