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

To: Johnny Canuck who wrote (40364)	11/17/2003 8:10:44 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71157

TradingMarkets.com Here's One Way To Place Stops Monday November 17, 6:21 pm ET By Dave Landry Protective Stops On Every Trade Placement of the initial protective stop is as much of an art as it is a science. Place them too close and you will almost surely guarantee yourself a loss as the "noise" of the market alone will stop you out. Placing it further away increases your chances of a winning trade should the trend resume, but obviously increases your risk if it doesn't. Stops can be placed on price pattern, the stock's volatility, or quite simply, the price of the stock itself. Tonight we'll look at priced based protective stops. Higher-priced stocks tend to move more on a point basis. Therefore, the following table gives you a general guideline on where a stop could be placed based solely on the price of a stock. This should help (but certainly not guarantee!) to keep you from being stopped out prematurely on a winning trade. Keep in mind that tighter stops can be used on less volatile stocks. Conversely, more volatile stocks will require looser stops. I'll dig a little deeper into the theory and practice of protective stops in future columns. Looking to the indices, on Monday, the Nasdaq (NasdaqSC:^IXIC - News) gapped lower and continued lower. It found its low in early afternoon trading and rallied for the remainder of the day. This action has it closing well after tagging its 50-day moving average (the red line below). The S&P put in a similar performance. So what do we do? The turnaround after tagging the 50 is, to quote Martha, "A Good Thing." It suggests that buyers are willing to step up to the plate at this well-watched average. It certainly doesn't give us an all-clear, but it's a lot better than cutting right through it like butter. Considering this, look to nibble on the long side but make sure you wait for continuation higher in the indices, sector confirmation, and of course, confirmation in the stock price itself (i.e., entries). If you took any short trades lately, in light of Monday's intraday turnaround, you might want to take some profits and cinch up your stops. No setups tonight. Best of luck with your trading on Tuesday! Dave Landry P.S. Reminder: Protective stops on every trade! P.P.S. Learn my best swing trading strategy in my new interactive CD-ROM. biz.yahoo.com