That "Coiled Spring" is day trader talk for a trade setup situation. Basically, it's a contra trend move on declining volume. AXC exhibited this pattern in its move to 2.62 which ended a couple of days ago. Having stopped at the discussed support / resistance at the 2.50 level, there followed a two day rebound to today's high of 3 3/4.
B A Marlow used the term coil and / or spring some days back in discussing this pullback.
While these trade setups can look snappy after being picked up by computer scans, the problem is that they lack context and thus can be only of use in "hit and run" trading situations. Without context, the day trader is forced to use reasonably close protective stop loss orders and most important, to take profits reasonably quickly.
While the initial capital needed for day trading may be less than for long term position trading, the pace can be exhausting, the commissions high and the profits limited. There is also the worry of the draw down effect - a string of losses which make the capital base psychologically too small for effective trading.
After looking at both sides of the issue, the irony is that the long term position holder seems to have the trading advantage in terms of potential profits. It looks like that the "frictional" costs of frequent trading - the trade commission, the sloppy executions, the trader decision lags on pulling the trigger, and the trader's physical and emotional exhaustion eventually take their toll.
To put it in context, if Ampex strides into the teens, with relatively modest capital requirements in say a three year holding period, quite a few of the long term position investor / contributors on this very message board will see million dollar plus position closeouts. This, from a relative few number of trading positions (but of course with much grousing and complaining - another matter) and a cost measured in patience and time waiting. IMO, quite a difference from the profits which typically accrue to the short term trader.
However, knowledge of the day traders tool kit can be very helpful in the long term trader's entry and exit from the trades which make up the position. This is meaningful only after the context and objectives are judged to be clearly articulated. The trick is in knowing how to switch hats without first landing in "Jail".
Ed Perry |
