The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Trading on Expectations
The short term trading game requires planning, discipline, and money
management. When a trade is entered, there should be visualization as to
how that stock will perform over the next few minutes, hours, and days.
If you are trading a breakout to the upside, the stock should rise and not
look back.
If you are playing moving average crossovers, the expectation is a trend is
beginning and the stock should continue up or down for a time.
The MACD indicator is used to identify changes in momentum and after a long
downtrend or uptrend when momentum declines, the trend should change and
not reverse.
A trader can be successful with 50% winners and 50% losers if they adhere
to the adage of cutting loses and letting profits run. I think you would be
happy with a 50% batting average if your average loss was $500.00 and your
average win was $1,000. This does not mean that each trade must wait for a
$500.00 loser and each winner should be cut short to only $1,000.
A divergence occurring can also present a good trading opportunity.
Let's look at Oracle Corp. (NASDAQ: ORCL).
Last Friday’s Market Call was ORCL for a breakout pattern.
I wrote
"The resistance in ORCL is at 62 5/8, which was the all time high on
January 3, 2000.
Today, February 10, 2000, ORCL moved up close to that resistance.
If ORCL breaks to new highs tomorrow, I want to be long the stock.
I would Buy ORCL on a up move in the morning to 62 �.
I would not buy ORCL unless in hit 62 �.
If I enter at 62 �, I would place a stop at 60 �."
ORCL did not trade as expectations. The opening and initial move was as
expected, but ORCL reversed and broke down quickly.
After the first hour, ORCL kept declining with lower lows and lower highs.
By the end of the day, ORCL closed at 59 11/16 near the low of the day. The
stop was hit and there is a losing trade.
ORCL is now at a critical support level in the 59-area price range. It
looks like ORCL may break below support at 59.
I would enter a Short in ORCL at 58 � with the expectation that ORCL breaks
support and keeps moving down. If there is not an immediate continuation
down, and ORCL has a move opposite Friday’s, I would exit the Short quickly
at 60 �. The expectation is a clean break with ORCL moving several points
lower.
