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Monday, April 11, 2005
Market Recap
I do not know about you, but this market is putting me to sleep. It is a market that would not commit to either direction and just hung around the flat line most of the day just as it did a few times last week. Today the DOW lost 12 points, the NASDAQ dropped 7 points and the S&P was flat.
No More Breakout Buys
I made the decision today to not buy a breakout again until this market turns into a raging bull, and right now, that does not look like it will happen anytime soon. My latest breakout buy was ESLR on Friday and it failed miserably and before I could bat an eye, and I was down on the trade. The chart is still in an uptrend but when you buy breakouts, you are buying way above the short term average lines and this causes your stop losses to be far below your buy, causing more risk in the trade. Pullbacks to these lines on stocks in up trends are the only trades that I will make until the market improves. These trades are less risky and stops can be placed just below the moving average lines for minimal risk. These are the only type long trades we can make at this time in this market. With the DOW and S&P still above their 200 SMA's for now, I do not want to load up on short positions in case the market bounces but I will start to short a few stocks in anticipation of a collapse.
Email on ESLR
I have received email about the ESLR trade and there is not much I can say except that when I made the trade, the indicators were strong and it looked like it could have broke out big and could have been a big winner. When I make a trade, I do so because at the time, everything I watch for looks good and the trade has a high probability of being a winner. Sometimes things change and momentum stalls and the stock reverses due to lack of buyers. This was the case with ESLR. When I make a trade, I do so because it fits all the criteria that I look for in a trade so it is with good reason that I take the trade in the first place. My reasons are technical only and if the technical's were not good at the time of the ESLR trade, I would not have taken the trade.
10 Reasons to Take a Trade and 10 Reasons Not To
Before making a trade, you should have a good reason for entering the trade. Before you enter a trade from now on, make it a point to ask yourself, “why am I making this trade?” If after you gave yourself an honest answer and you are still convinced it is the right trade to make, then you should take the trade. Below, I have listed some example answers to this question you should have from now on before you trade. The first list is the good reasons, followed by the bad reasons. If after you ask yourself, “why am I making this trade?” and your answer is one of the good reasons listed below, then you should take the trade. However, if your reason is one of the bad reasons listed, then you should think twice about taking the trade.
Some Good Reasons for Taking a Trade
The stock is strong and is in a strong group
The trend is up and it just pulled back to a support level
The 50 SMA just crossed above the 200 SMA
The ADX is above 30 signaling a very strong trend
The slow stochastic is rising above 20 from oversold levels
The RSI is just above 50 so there is room for more upside
The stock just broke through a resistance level
There is a Flag formation on decreased volume
All moving averages are lined up with the lowest one on top
MACD is above the signal line and above Zero
Some Bad Reasons for Taking a Trade
The market is open.
I want to make at least $500 a day so I must trade
That Guru on BSNBC says buy it now
My broker recommended this stock
I am averaging down because it is even cheaper now
I have lost a ton of cash and I need a big winner to make it all back
I heard a rumor on the Yahoo message boards
The P/E on this stock is low, what a bargain!!!
The stock was upgraded by an analyst today
This has to be the bottom. It just cannot go lower than this.
Let's face it; we have all been victims of taking trades for reasons listed in the second list. I have done this myself in the past but I can proudly say that I have graduated from the second list on up to the first list. If you take trades for reasons in the first list, I can assure you that you will have much better success than if you were to take trades for the reasons in the second list. Print these reasons out and look them over the next time you feel like making a trade. By the way, I could have answered yes to 7 of the 10 questions above before making the ESLR trade. That is how good the technical's were at the time.
Important Announcement
There will be no bulletin or commentary the week of Apr 18-21. It is spring break and I have a trip planned with my family. This is the first vacation that I have had since September 2003. I will do a bulletin on Sunday Apr 17th and the next bulletin will be the following Sunday Apr 23rd. I will miss 5 trading days and 4 bulletins but will have stop prices listed in the Sunday bulletin on any positions I leave open. If those stop prices are reached, Mike Serven will send the sell alerts.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Please Tell A Friend
Please tell a friend about our service. As always, thank you for your support past, present and future!
Earnings Calendar
Do not forget to check your short-term holdings and know when those companies are reporting earnings. Holding a stock through earnings is risky and I do not recommend it. You can always buy the stock back after the dust settles.
Stockcharts Listing
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Thank you all for voting.
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