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Strategies & Market Trends : Strictly Buy and Sell Set Ups -- Ignore unavailable to you. Want to Upgrade?

To: whitepine who wrote (11903)	4/5/2007 2:03:19 PM
From: chowder	Respond to of 13449

>>> "If the professionals are worried about risk management, why didn't they enter the trade earlier? They can set stop losses to limit downside risk at any price. Why is the risk any greater at one price than another?" <<< People will either get this or they won't. If they don't get it, they will never benefit from the strength of the strategy. It isn't price that the professional focuses on, "WHEN ENTERING A TRADE," it's price movement. Your example would have someone buying as price is falling, because your focus is on the dollar amount, not the direction of price. Professional traders buy as price is rising. Hence the strategy of buying when price rises above the previous day's or week's high. It's price movement they focus on. They want to hop on board when price is rising with the understanding that something in motion stays in motion. Short term traders, with a 2 to 5 day time frame would anticipate a bounce off a price support level and enter the trade as you suggested. The longer term trader would not. Short term traders will often engage counter trend strategies. It's a lot harder to do counter trend when you have a longer term time frame. The law of physics is against you longer term. >>> Second, aside from professional traders, what about institutional buyers/investors? If some of these folks are using FA, why wouldn't they be entering the market? <<< Those using FA are lousy at timing the market. I heard Cramer say that the other night. He said he's a good stock picker in the long run, but lousy at the timing. Since FA types are lousy market timers, they are sold on buying on severe or decent pull backs. It's their margin of error. FA types often think price is extended or a stock is overvalued because they are focusing on price, not price movement. FA types aren't focusing on demand vs supply. TA types focus on supply vs demand. If something is in demand, it doesn't matter what price is. They will continue to buy as long as demand is strong, regardless of price. They sell when demand dries up and supply starts to hit the market. >>> Third, as the price rises, doesn't risk increase? Why did no buyers appear as the price continued to climb (i.e., higher risk)? <<< The real risk doesn't come into play in a strong uptrending stock until price has pulled back to a rising 20 week moving average and successfully tested that pull back on 3 to 4 occasions. Buyers will continue to show up after periods of consolidation. They showed up yesterday as volume was above average.