>>> Any opinions on TOL and the OSX? Is it just a pullback or the beginning of something new? <<<
When I look at a chart, the first thing I try to do is to determine the trend. Is the stock in a Stage 1 basing period? A stage 2 uptrend? A stage 3 consolidation? Or a Stage 4 downtrend?
Each stage has it's own strategies for trading. History has proven again and again and again, by many studies that I've read, stating that those who underperform the market, by not beating it on a consistent basis, is due to people buying and selling the wrong stages.
Studies have shown that 80% of institutional investors do not outperform the market on a consistent basis and studies have shown that during the 90's, which included the bubble years, 95% of investors did not outperform the S&P 500 over the number of years included in the study.
People buy when they should sell. Sell when they should buy. Hold when the shouldn't and don't have a successful way of dealing with losses.
When I look at a chart of TOL, it's in a strong Stage 2 uptrend. To verify this, I look for the 20 day moving average to be above the 50 day moving average and a wide separation between the two. Those moving averages should be rising in conjunction, in a north easterly direction.
I don't think there's any question, after looking at this chart, that TOL meets the definition of a Stage 2 stock.
stockcharts.com[h,a]daclyiay[d20040912,20050212][pb50!b20!f][vc60][iut!Lc20]&pref=G
The most effective way to trade a Stage 2 stock, with a high probability of a successful trade, is to buy the dips, especially when into a support range like a 20 day moving average.
Some like to try and anticipate a top but there's no way of identifying said top. At $65, TOL looked overbought and ready to turn over. It looked overbought and ready to turn over at $70 too. Same at $75. Same at $80. And now we get a little dip from $85. Anyone shorting or buying puts at any of those price ranges lost money.
Successful trading is about playing probabilities, not trying to out guess the market.
If we were to roll a set of dice, there is only one possible way to roll a 2 or roll a 12. There are 36 combination of numbers when rolling the dice and trying to roll a 2 or a 12 only provides a 1 in 36 chance of being successful. You can do it, but the probabilities are so slim that you would lose money if that were your system of operation. That's what trying to short or buy puts is like when doing so in a strong Stage 2 stock. You may succeed occasionally but, it's a system designed to fail over the long run.
Buying a Stage 2 stock that goes through a 3-5 bar drop into a support level has a higher probability of success if we can confirm it with a price that trades above the last down bar in that series of down bars.
Now, if we needed to roll a 7 with those dice, there are 6 possible combination of numbers to achieve success. There are 5 combination of numbers to come up with a 6. If we needed a 7 or a 6 on the next roll, the law of probability favors us as opposed to needing a 2 or a 12. Although we could still lose, shooting for a 6 or a 7, there is a higher probability of success.
Buying dips on a Stage 2 stock is like needing a 6 or a 7 on the next roll.
Where you can't see a top in advance, you can see a support level in advance. The odds are now in your favor if you buy support as opposed to trying to out guess the market with regards to tops.
A successful trading strategy requires an edge. A book makers edge is the vig or the juice. A casino's edge in blackjack is letting you go first and ties go to the house. The edge in craps is that a 7 takes you out if that's not your mark. There's only a 6 in 36 chance in rolling a 7 but that's enough of an edge to take you out when you need to roll another number.
If one is going to have an edge in trading, then studies have shown the most successful traders are the ones who can properly identify the trend and go with it.
>>> Is it just a pullback or the beginning of something new? <<<
I don't know.
What I do know is that we still have a Stage 2 stock in TOL. I do know that we now have a 3 bar drop off a recent high. If I'm looking to buy, my strategy in this set up is to place a buy limit just above Friday's high. If this doesn't trigger, I wait for the next down bar and do the same.
If I'm holding TOL, my strategy is to wait for price to test the 20 day moving average before selling, provided my view is more than 2-5 days. A close below the 20 day moving average is a sell signal for intermediate and short term players.
If I'm looking to short TOL, based on the Stage the stock is in, I'm looking to short on a close below the 20 with the price target being the 50 day moving average.
I don't know if this is the beginning of something new, I merely plan ahead using different strategies for different scenarios that may come into play. I'm looking to roll a 6 or a 7, not a 2 or a 12.
dabum |
