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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (39627)	5/30/2003 7:22:08 AM
From: j g cordes	Read Replies (3) \| Respond to of 69966

A trading note on timing entry and exit. Anyone who's played options knows first hand the pain of entering a position only to watch the premium fade while the stock or index does exactly what you expected. If the turn you anticipated stalls, the value seems to evaporate. For myself, I've always relied on mental images and analogies to reinforce a perception or lesson. Here's one I try to remind my self of when I find myself eager to time a trade. The rise and fall or trending occilations of an equity or index are very often like the movement of ocean tides. If you've ever watched a tidal turn it doesn't happen all at once, there seems to be a significant pause between incoming and outgoing. You sense the tide won't go any higher, but it seems to linger near its highest point with occasional waves threatening even higher marks on the sand. The same is true timing a high or low in trading. You sense a turn and want to take a position, but the price lingers appearing to move up and down for a awhile before its evident there's a change of direction. Obvously tides are fixed within a predictable range, but the lingering of one cycle in preparation for the next is instructive. The price of the option isn't cheapest at the top or bottom of the turn. Its price goes down a little after the high or low is met, when there's a pause of indecision. The first brief moves in the new direction don't seem to add any value to the option, often they take out premium. So what to do? Throw in your offer to buy at the asking price or below. If its showing 3.20 - 3.60 on the screen then offer 3.1 to 3.3 depending on how certain and willing you are, but never offer 3.6 If you don't get it right away be patient, those unpredictable waves that confuse certainty of a new direction often work in your favor. Last thing to remember is some trades will always get away. They won't meet your price prediction objective. A "could have sold it for more" that goes negative isn't as good as having broken even or pocketed .05 to .10 per contract. Practice selling every once in a while. Make a trade just for the sole purpose of training the mouse hand to click sell, then when the time comes you won't hesitate. Jim