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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: chartseer who wrote (21420)	6/18/1999 1:58:00 AM
From: Smooth Drive	Read Replies (1) \| Respond to of 34811

Hello Seer, I think you know a lot. That's what it looks like to me. You know with the market like it is, I've been thinking a great deal about different approaches to risk management. I'll post one and perhaps you or someone else will post one. One approach to RM is to buy the breakout or positive reversal, establish a sell limit order of 50% of the shares at a predetermined price that assures you that at least you'll break even if the price reverses and you are stopped out. Works like this: Let's say we are going to buy the positive reversal, and the chart of ABC Company looks like this: 87 86 X < Breakout 85 X X O 84 X O X O X < Positive Reversal 83 X O X O X ? 82 X O X O X ? 81 X O X O ? 80 X O ? < Stop 79 X 78 The double top buy signal at 86 put us on alert. The next column of O's establish the pullback. Then -- when it reverses back up, we have a positive reversal and we buy at 84. Here's one way to manage the risk. Place a sell limit order for one-half your shares at 88 and a sell stop order for anything that hits 80 (the next column of O's double bottom sell signal). In this way, if the stock rises to 88 and you sell half your holdings, and then the stock falls and you're stopped out, then at the worst you break even (this does not include commissions). There is something very nice and warm feeling about knowing you have hit your sell limit, that you now have more cash to buy another stock you like, and if the bottom does falls out of this stock, your basically going to break-even. (Anyone ever bought a stock, placed your stop, watched the stock rise nicely but not enough to hit that 20 or 30% target and then -------- crap, reverse down and hit the stop. If only I had sold some when it was up!) It's a simple little formula: (Purchase Price - Stop Loss) + Purchase Price = Sell Limit Take care, Eric