Before I look at two examples of my trade entry technique I want to caution anyone from using these for actual trades. I was asked the other day if I used fundamentals in my trading. I’m basically a swing trader. I’m the next closest animal to a day trader. Swing traders look for quick price movements from just a couple of days to a couple of weeks. Working within these swing periods fundamentals play a very minimal role and technical patterns are the key.
I pick my initial pool of stocks to watch based on fundamentals. I look for strong, healthy companies in strong healthy industries, Companies and industry sectors that are in crisis are just to unpredictable to move on. This pool is further reduced by setting certain criteria for price range, volatility, P/E ratio etc. Out of this pool I start looking for technical patterns that are starting to develop. Here’s where it gets really personal. I use a lot of “gut feel” for inclusion into my close watch list. I tend to trade a lot of stock over and over and I get a feel for how it moves. Last but far from least I use a money management system.
Using my money management system with a defined trading plan I can make money picking 4 winners out of 10, that’s 40%. I try to do better than that hence my technical timing and trade plan. Every now and then, out of my winners, I get a grand slam and that’s what it’s all about.
So if I’m not recommending JOYG and EXM what am I doing? I’m throwing a couple of “interesting” issues onto the table and then inviting traders to follow along with my entry / exit as a way of sharing techniques. I’m hoping that other traders will do the same and I can pickup pointers from them. If we can get a good forum going we can all learn and profit from it.
Enough said . . . . .
If you recall I showed, in my commentary of Aug 5, three places I look for entry into a trade. The first entry is the riskiest but has the highest potential gain. Why? At the first entry (buy) point the pattern that I like to trade is just starting to form. If we buy into the trade here we’re getting in on the ground floor and can take advantage of the majority of movement in our trade. But . . . because the trade pattern is in it’s early phase it may or may not develop. Kind of like a tropical depression could turn into a hurricane if all the right conditions happen. The second entry, buy point, is safer because the pattern has developed more. The tropical depression is a tropical storm now.
JOYG has reached the second entry point. Price has risen to a resistance zone, defined by the previous high, and rebounded off it and is now retesting that resistance. If, tomorrow, we see the price convincingly break the resistance this a a good place to enter a trade. I could set a real tight stop just below the rebound low at $39.90 or a looser stop just below the first pullback at $35.00.
EXM is still in the first retrace and depending on how deep this retrace goes this pattern may go south. The retrace often takes the form of a 3 wave movement and only watching over the next few days will tell the story. This, again, is why the first buy point is the riskiest.