This is what we try to avoid and why we have learned PnF.
I'm not doing this to make fun of or insult anyone but I wanted to use
it as an example of why we do not chase stocks.
A post about IDC from the IDC thread...
What should I do? I am very nervous about this stock. I own 900
shares of IDC at 62 per share, 65 per share, and unfortunately 79 per
share. Please help me out on this.
Let's look at the chart and where this person bought IDC. It seems
they averaged down without considering what was happening to the
stock technically. I know IDC performed well for some of you but you
all were in at the beginning and pullbacks, not this poor investor.
IDC:
85
84
83
82 X <--Major high pole and top made on
81 X O 12/30/99.
80 X O
79 X O <--Three box reversal which would
78 X O be the trade stop on a high pole.
77 X O Looks like it did this move in
76 X O one day, hard to stop out on that
75 X O quick of a move but a three box
74 X O would have alerted the trader to
73 X O act saving some of the fall.
72 X O
71 X O
70 X O
69 X O 69
68 X O 68
67 X O 67
66 X O 66
65 ----------------------------X O ----------------------65
64 X O Notice the lower
63 X O X tops showing supply in
62 X O X O control.
61 X O X O X
60 ----------------------------X O X O X O X <--Chance to exit after
59 X O X O X O X O 2nd warning.
58 X O X O X O X O 58
57 X O X O X O X O 57
56 X 1 X O X O X O 56
55 ----------------------------X O X O X O X O ----------55
54 X O X O X O X O 54
53 Low on 1/3/00 and close-->O O X O X O 53
52 First warning-->O X O X O 52
51 X | O O X O 51
50 Second warning and exit on longs-->O --O ------50
49 Third break today, Whoopsie doodles-->O 49
48 X | O 48
47 X | O 47
46 X | O 46
45 ----------------------------X | ----------O ----------45
44 | O 44
43 | O 43
42 O 42
41 O 41
40 ------------------------------------------O ----------40
39 O 39
38 O 38
37 O 37
36 36
35 ------------------------------------------------------35
Here is the two box chart.
82 | X | 82
80 +---------X O ----------------------------------------------80
78 | X O 78
76 | X O 76
74 | X O 74
72 | X O 72
70 +---------X O ----------------------------------------------70
68 | X O 68
66 | X O Again, lower tops and bottoms.
64 | X O Top64
62 | X O X 62
60 +---------X O X O X --X ------------------------------------60
58 | X O X O X O X O 58
56 | X 1 X O X O X O 56
54 | X O O X O X O 54
52 | X | O O X O 52
50 +---------X +-------O --O ----------------------------------50
48 | X | O <--Third sell signal.
46 | X | O 46
44 | X | O 44
42 | X | O 42
40 +---------X +-----------O ----------------------------------40
38 | X | O 38
What did this investor do? He chased. Why we don't know but lets take
a look at what chasing does. Here we have a stock that has been on
fire and the investor wants to enter. They probably fear "missing" the
stock and instead of looking to another stock, there are over 12,000
you know, that is at support with a good stop, he enters this extended
stock with no stop point or plan should it go wrong.
Here is the chart on the firt buy point.
82 X
81 X O
80 X O
79 X O <-- First buy in either on the way
78 X up or on the way down.
77 X Where is the stop point?
76 X There is none and this is why we
75 X wait.
74 X How can you judge a stock here
73 X at this level?
72 X The only thing you can do is
71 X think the stock will continue
70 X up.
69 X
68 X
67 X
66 X
65 ----------------------------X
64 X
63 X
62 X
61 X
61 X
60 ----------------------------X
59 X
58 X
57 X
56 X
55 ----------------------------X
54 X
53 X
52 X
51 X
50 X
49 X
48 X
47 X
46 X
45 ----------------------------X
The second buy point.
82 X
81 X O
80 X O
79 X O <-- First buy in either on the way
78 X O up or on the way down.
77 X O
76 X O
75 X O
74 X O
73 X O
72 X O
71 X O
70 X O
69 X O
68 X O
67 X O
66 X O
65 ----------------------------X O <--Second buy either on the way up
64 X or on the way down.
63 X Again, where is the stop point?
62 X How do you know that this is where
61 X the stock stops pulling back?
60 ----------------------------X You don't, you would have no idea.
59 X
58 X If he bought this on the way up the
57 X same question applies. How did he
56 X know the stock would continue up?
55 ----------------------------X Where would he set his stop?
54 X This was a new stock with no
53 X history making it very scary.
52 X
51 X
50 X
49 X
48 X |
47 X |
46 X |
45 ----------------------------X | ----------
44 |
The third buy point.
82 X
81 X O
80 X O
79 X O <-- First buy in either on the way
78 X O up or on the way down.
77 X O
76 X O
75 X O
74 X O
73 X O
72 X O
71 X O
70 X O
69 X O
68 X O
67 X O
66 X O
65 ----------------------------X O <--Second buy either on the way up
64 X O or on the way down.
63 X O
62 X O <--Third buy point. Hey, if it
61 X looked good at 79 and at 65 it
61 X is down right gorgeous at 62
60 ----------------------------X right?
59 X
58 X Not when you are looking at a
57 X major haircut by 50% without the
56 X benefit of a split.
55 ----------------------------X
54 X
53 X
52 X
51 X
50 X
49 X
48 X
47 X
46 X
45 ----------------------------X
How best to trade this?
Wait for some indication of a bottom or a good risk reward. If it
never pulls back well then find another stock. But, if it does, watch
to find the enter that gives you the most information. Never guess
the extent of a pullback. IDC is an excellent example of what can
happen if you take that risk.
Here is what should have been done even though the position would have
been stopped out. The loss would have been micro itsy bitsy compared
to the loss illustrated above.
85
84
83
82 X
81 X O
80 X O
79 X O
78 X O
77 X O
76 X O
75 X O
74 X O
73 X O
72 X O
71 X O
70 X O
69 X O
68 X O
67 X O
66 X O
65 ----------------------------X O
64 X O
63 X O X <--Stock rallies. No way to know
62 X O X O if this is the top of the rally
61 X O X O
60 ----------------------------X O X O
59 X O X O
58 X O X O
57 X O X O
56 X 1 X<--Three box entry here. Entry is
55 ----------------------------X O X O at 56.
54 X O X O
53 Stock pulls back here -->O O
52 X O <--Stock breaks a double bottom
51 X and a stop for the trade.
50 X
49 X With the entry at 56 and the stop
48 X at 52 your risk was 4 points.
47 X Rather than guessing the pullback
46 X was over at 72 and finding the stop
45 ----------------------------X at 52 losing 20 points. This also
44 saved you additional loss by
not participating in the move to
the low 30's costing even more money!
yikes.com
|
