Bob,
TA and the tape are the key tools I use to determine exits which establishes my profit or limits my loss in an option trade.
To be honest, I guess I have become more of a pattern reader than anything else. I have met with pretty good success with this approach since July. <gg> I watch for strong stocks in a certain price range that are basing or coming up off a correction to a strong MA. Each weekend I run two large scans that give me two databases of about 150 to 200 each. Each weeknight I go through both of them visually looking at the charts and fill the watchlist for the next day. This sounds like it would take a long time but I look for very specific things. I can get the number of possibilities down to about 40 in about 30-45 minutes. Picking 10 out of the 40 takes a little more time. Sure wish the Quotes+ data was ready earlier.
I also set my exits on stocks that I own with moving averages, previous resistance, and volume.
To enter I know what my entry price is, volume should look like, and what I expect the trade to do. This last one would be something like "bouncing off 21ma at $6.5, last resistance at $8, exit at $7.625 or breakout from $8 after 4 week consolidation, next gann at $10, exit at $9.5". If the trade does not act as expected and/or it goes against me I exit very fast and regroup.
But I also look for factors that would favor good trading activity on a stock, such as good recent news that has positively impacted the price of the stock, and other positive forces like positive earnings surprises, stock split announcements, and so forth.
I do not have any hard data to substantiate this but I think there is often a correlation between strong stocks being sold off and the release of news. You occasionally see a big gap with good earnings, etc. but alot maybe most of the time you see selling into strength. IMO
Good IBD ratings are very important to me. I try to look for companies that are very visible in their market place and have basically sound fundamentals. Also, it is important to me that their industry is performing well in the stock market.
I agree with the above, especially if one doesn't want to spend 24 hours a day looking at every chart under $15. <gg> IBD ratings and group performance are especially important to me. I wish I had a better method or checking what group a stock is in and how that group is performing against the others.
All of these items beyond TA, the tape, and the IBD ratings are optional indgredients to the recipie that I use in my attempt to make that extra difference in managing the risk associated with trades.
If you are successful at it and making money then you are correct. Again protecting your capital, however you do it, is critical.
David |
