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I like to use a trend line to exit. If the stock breaks below the trend
I sell it.
If the trend gets steeper, go with it and enjoy the ride.
When exiting a blow-off top (a sharp peak starts to develop - fast up
followed by fast down) I watch the volume by the hour. When the stock
looks like it has peaked and volume per hour declines the ride is over.
I have used this method successfully to exit at or near the peak of some
multi-week runs and it feels good when it is well executed.
I believe this is how to execute good money mgmt as well. Cut the ones
that move against you and ride the winners.
Depending on how often you like to trade the trend line could be drawn
on the lows of each day(read as a 3 to 8 day run), or the lows of a
longer term channel (read as a 3 month run). (I have probably
infuriated a TA purist with this last comment!)
Obviously if you were day trading a different method of exiting would be
appropriate.
OBTHW I like your articles Jim and someday I am going to go back and
read the ones I missed.
I have missed more than I have read - my loss. Your theory and
selection process and is similar to mine.
Dave
Jim Greening wrote:
>
> All,
> A busy week with a lot of portfolio changes. I opened a FDX position
> Monday. I was stopped out of NSOL Monday, SCH hit my target Tuesday, and
> both RDC and SLB were stopped out on Wednesday. Finally I opened a C
> position Thursday. Even with all those changes, it was a good week for my
> portfolio.
> We're going on vacation Friday to see my parents in Texas and spend
> some time at the beach on South Padre Island so there won't be a weekly pick
> the next two weeks. This week I want to add another market leader momentum
> type stock. I narrowed my list to Home Depot (HD), WalMart (WMT) and
> WorldCom (WCOM). I finally decided on HD because they are entering their
> prime spring sales season which I think gives them a little better short
> term potential.
> HD at 67.31 is broke out of a small, month-long cup formation on good
> volume to a new all time high Friday. This is a classic CANSLIM type buy
> signal. It's in a long, intermediate, and short term up trend channel. The
> Intermediate Term Up Trend Channel (ITUTC) is a Trader Vic type channel with
> the bottom formed from the 10/8/98 low to the 4/5/99 low and extended to the
> right. The top of the ITUTC was made by drawing a parallel line through the
> 12/30/98 high. The top of the ITUTC is at 78.32 and the bottom is at 61. I
> drew a standard deviation Short Term Up Trend Channel (STUTC) from the
> 4/5/99 low to Friday's high and the bottom with a deviation of 1 is at 65.
> The Binary Wave Composite is barely positive and flat, the QStick is more
> positive and rising slightly rising. That's bullish, but not strongly
> bullish. The fundamentals are good with the price/sales 3.48, debt/equity
> at 0.16, ROE at 19.4%, 25% annual sales growth and 35% annual earnings
> growth. I'll open a position Monday. I'll set my target just under the top
> of the ITUTC at 78 and my stop just under the bottom of the STUTC at 64 3/4.
> Speaking of targets, I'm thinking about changing my system slightly.
> The last several stocks that I've closed when they hit their targets have
> gone on to much higher levels. They have either gone on up by paralleling
> the top of their channel or have broken out of their channel to set new
> steeper channels. I want to take a profit near the target if the stock does
> turn down, but still allow it to run if it continues higher. What I'm
> thinking about is instead of closing the position, I'll just tightening my
> stop to a trailing three day low and stay in the position until the stop is
> hit. If the stock does go on to set a new steeper up trend channel, I'll
> eventually revert to a target and stop based on the new channel. Any
> comments?
>
> JimG
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