There are LURKERS here??? ;)
As far as dumping EMC goes, short term trading appears to me more money and risk management than it is "being right" with the price action of the stock.
For trades over very short term time periods, particularily what I have read about floor trading, I think success is from the intelligent playing of the odds. This is because you are strictly dealing with probabilities at this level. The trick is to be able to survive the bad trades in order to profit on the good trades. A good trader I believe is able to run through a string of lets say 3 or 4 bad trades to profit and still be ahead with the one good trade. This is done through money management skills.
Risk management involves jumping on a stock that has upward momentum and good "fundamentals", which involves knowing where the money is moving in the market place on the trading floor for example. Tape reading appears to be valuable here. Knowing what the market trend is and where the big money is going to helps alot. Floor traders are willing to take quick profits.
I am not speaking about floor trading from experience but from what I have read on the subject. Anyone here have any feedback for me?
As far as this applies to short term speculation, I think the same rules apply even though in this time frame they are applied a little differently.
One of the lessons I have learned this year is that when I jump in a stock with good upward momentum, lets say from a recent breakout, and the stock approaches and then continues to bump up against what turns out to be a major resistance level without penetrating it, and particularily if the technicals are weakening in the process, get out. This is particularily true if you can show a profit. Just be willing to take your profit and run. You may not end up with the profit you "could have" ended up with, but your time frame is short to begin with. If you chose your entry point intelligently, and planned your trade, then you still will have a reasonable profit to show. Also, I think it is a good idea not to put more than 10% of your money in any given very short term trade.
Now if the stock continues up breaking through resistance points, then you may want to add to your position and ride the momentum up depending on what type of investor you are and your plan for this particular stock. The idea here is to minimize your risk exposure. When after an extended run up your stock reaches your price target, or the momentum appears to be reversing, then you may way to take part of your profits at that point. When the stock breaks through important support, or moves down by a percentage from its high, then you may want to unload the rest of your position. Or you can just dump when the price successfully breaks through its trendline. This of course depends on your plan that you made before you purchased the stock.
Of course, another strategy, particularily if the stock has had an extended run up, is to write options of the stock. But that is a different approach altogether with somewhat different investment requirements. Options can also be used for hedging and also used for protection related to a speculators stock purchases. For this volitile market, I have been teaching myself how to use this tool.
These are some of my idle thoughts of late. Any feedback welcome.
Bob Graham
PS: Any stock purchase should involve a plan. This plan covers why you are purchasing the stock, what fundamentals and technicals are motivating your purchase, what needs to change or occur for you to exit the trade, and determining what price you will be dumping the stock. This plan needs to be put together before the purchase of the stock at which point you need to use discapline to follow the plan. It is also helpful to be aware of timelines of events, such as when the next earnings report will be coming out. It also is very helpful to know where the support and resistance levels are for your stock when you develop your plan. |
