Trading breakouts [By The Book]

Discussion in 'Journals' started by konviction, Feb 27, 2012.

  1. the1

    the1

    Can't find my example of an unfilled gap. Will post later if I can find and I have time. In the meantime I'd suggest a good book on chart patterns -- edwards and magee or murphy. Never read murphy...I went straight for the jugular with e&m. Great book but a lot to read and absorb. Reads a little like an engineering book :)
     
    #31     Mar 2, 2012
  2. why?
     
    #32     Mar 2, 2012
  3. pnl day 615

    pnl open 831

    MHS and SCSS lead the losses for today with -300 and -195 in todays trading.

    I expect this to see this kind of stuff but I was surprised to see MHS turn around from what I was so sure to be a nice sell off.
     
    #33     Mar 2, 2012
  4. the1

    the1

    Probably the best way to explain why is the amount of time that is elapsing between what you are using as a reference point for your entries. For example, if a stock is trading in a symmetrical or ascending triangle that spans 3 months the prices and activity within that 3 month period is highly correlated. Now suppose the stock breaks out and you are looking for a target to exit your trade and you see a congestion zone that occurred 1 year ago where potential "get out even" sellers, as the theory suggests, exist and will sell their stock forcing the stock back down. Roll that congestion zone out a few more years and it become less and less significant. As time elapses points of reference that exist on a chart become less significant and can be completely discarded if enough time has passed. Edwards and Magee talk about this concept in their book. It's an important concept and experience has taught me it's something to pay attention to.

    Also, I wouldn't enter a stock that has advanced something like 10 points and consolidates for a few days before beginning the next advance. A stock that makes a rapid move like that typically needs time to rest before the next leg begins.

     
    #35     Mar 2, 2012
  5. I would disagree. John Murphy's book technical analysis of financial markets, page 60:

    " The more trading that takes place in a support area, the more significant it becomes become more participants have a vested interest in that area."
     
    #36     Mar 2, 2012
  6. That's why I asked earlier, why do you set targets. A single price swing may last a year and increase 100%+ before it runs out of steam. Setting a target is the opposite of what you're trying to achieve. I don't know about you but it makes me sick when I exit a position only to see it continue on its merry old way to the moon.
     
    #37     Mar 2, 2012
  7. Because I can't just assume that it will go to the moon. The target also gives me an idea of a good place to take money off the table.
     
    #38     Mar 2, 2012
  8. the1

    the1

    I agree but the point I'm trying to make is that with the passage of time that type of area becomes less significant. If a stock takes 5 years to get back to a previous congestion zone most of those sellers are likely to be gone so the stock could move through that zone more freely.

     
    #39     Mar 3, 2012
  9. the1

    the1

    This is just something you have to accept as the difference between being a trader or an investor. In theory, the $'s you missed on your stock going to the moon will be made up on your next play. The way I settle this issue is having a trading and investing account. The investing account tries to catch those moon plays while the trading account is a relentless profit taking machine.

     
    #40     Mar 3, 2012