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Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term
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To: BDR who wrote (35)4/13/2000 8:39:00 AM
From: Tom Trader   of 57
 
What indicators are you using to determine when a stock is overbought and when would you take action?

I primarily use RSI for assessing overbought/oversold conditions -- and when there are extreme conditions in either direction, then it is the appearance of momentum divergences that can best guide one as to when a turn is likely.

You should be aware that my technical analysis skills are rather basic -- there are others who are far more sophisticated in this regard.

Likewise for momentum trading-how do detect the arrival and, perhaps more important, the departure of momentum traders?

The moves in a stock that are momentum driven are easier to detect than when they choose to leave the stock -- and there is a subjective component to it. When we see these exaggerated moves in stocks day after day, especially accompanied by high volume, it is more than likely that it is momentum players who are helping to drive the stock up.

Momentum players leaving the stock is more difficult to detect -- it starts with a trickle and then becomes a torrent. We generally see a retracement from the high and then an inability to move higher. I would choose to employ some form of portfolio protection before that occurs while the stock is still powering ahead. If I am right, it would mean that I did the right thing -- if wrong, then it merely means that I have parted with some of the additional return that I could otherwise have achieved.

I would hope we can get a discussion going on your third component - the specific instrument that one should use to achieve protection.

I am checking on certain tax ramifications; I have been informed that there are issues of "constructive sale", if one employs certain strategies. But preliminary research seems to suggest that the area is somewhat nebulous.
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