“Winners Anticipate; Losers React”


– March, 29, 2013 –

For many traders in the market ignorance is bliss; but with me; I know what I don’t know; which allows me to stay away from bad trading positions most of the time. Even though a stock may move $20 in a day; I’ve developed a detachment from stock envy to the point that I know what is and isn’t tradable for my best long-term interest.

Sooner than later you’ll realize that surviving choppy markets and profiting the most when you do have sustained market moves should be high on your list of skills. To do this you have to develop the patience to sit on the sidelines for long periods of time. The ability not to get caught up in other people’s stories of how they just landed the big one may be the hardest wisdom to gain for active traders. You must realize that fisherman who insist on going out into hurricanes may get lucky and bring home the big one every once in a while; but over time will eventually become bait.

Always remember Rule #34 “Tomorrow’s Another Trade” and if you miss a trade today; instead of fretting over it all day long; move on and use it as motivation to study harder so you’ll be waiting in a better position for the next trade.

When I visualize the stock market I see a giant never-ending puzzle with thousands of pieces called stocks. Probably the most compelling reason for this is that I’m an ardent technical trader who is constantly gazing over stock charts trying to connect the dots to determine the precise details for where the piece will fit in the puzzle.

Of course each stock is its own puzzle; but combined together they make up a mosaic of sorts that we call the stock market as a whole. So when trying to determine the next move in the market it is essential to understand individual stocks and how they fit within the larger scope of the market itself and not just the stock’s puzzle by itself.

My strategy as a trader has always been to first determine the direction of the overall market and then to use individual stocks with the most potential to multiply the overall markets movement.

Keeping this attitude at the foremost of criteria in selecting winning stock trades will greatly enhance and multiply your winners far beyond the percentage moves of the overall market.

I spoke about the need to perfect the art and science of price and timing for winning trades in my previous article “Timing is Tough”. This article wasn’t packed with specific details; but it gave you an idea of what you needed to derive from your charts and how you needed to “Hit’em where they’re not” in the market to win.

On Wednesday and Thursday of this past week I had several traders ask me about GOOG; a stock that has had a very successful start to the year. So I took a long look at the charts and while the charts told me one thing my head told me another. The charts showed good long-term support at $797 and $794 just underneath the Bollinger Band; but the way GOOG had gotten to those price points signaled many red flags for me and its correlation to the QQQ also made me hesitate to buy into the trade there.

Instead of following my charts blindly I knew that while the support was good too many traders were ready to buy GOOG in hopes that it would rebound back to near its previous highs. The trade seemed too easy; too obvious; too in favor to work; so instead of making a move to enter into a position I decided to go back to the charts and look for the nearest absolute support; a place where I knew GOOG would have to reverse or at least pause its decline.

I also thought to myself; if I bought GOOG here; at what price would I give up; where would I lose faith in the stock? Next I looked at the QQQ and asked myself; if the QQQ fell $2; down to absolute support at $67; where would GOOG ultimately land so that the market would be with me in the trade.

You see; I don’t get emotional about stocks; I don’t get excited; in fact when others get excited I get worried and start looking for the nearest exit. When I give out stock tips the reaction I get from traders tells me a lot. If they’re suspect of my calls I start to think that the call may be a good call; but when everyone agrees and starts loading their guns for the hunt I often pullback and reassess my enthusiasm. Like Yogi Berra said “Hit’em where they’re not”. I believe if you keep this in the forefront of your mind when trading you might improve your trading a bit more than otherwise.

So back to GOOG; on Thursday at the close it ended on good support which is often a warning sign that it will gap down over that support and continue lower come the next trading day. Below the $794 price there are several good support levels that could reverse this decline; but you have to look all the way down to $771 to find the next absolute support price for the stock and that absolute support is a 2nd test which sometimes allows a stock to often linger for weeks before reversing to regain its positive momentum.

Now I know you don’t completely understand my use of the terms “absolute support” or “2nd test”; those are technical definitions that would require an in-depth explanation that I just can’t provide here. So you’ll have to develop on your own understanding of my terminology by projecting my price levels onto your own charts.

So what do I think of GOOG; well I would keep it on my radar for sure; I wouldn’t short it because it does have good support that could send it higher at any moment; but I would give it some room to find positive footing again. From $771 to $775 would be my entry level for the stock especially if the QQQ can make it down nearer to $67 before GOOG finds that level.

GOOG is a strong stock with a good chart; but for me it’s still too obvious and I want to let it loose favor with more traders before I jump back into here for the near-term.

As always – study more than you trade and you will succeed – good luck – PTP –

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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