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. When a stock breaks support, it should continue down
without looking 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.
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 look at a divergence trade in Cisco Systems
(NASDAQ: CSCO).
CSCO moved down to support yesterday which was 60 1/8, the June 30 pivot low
in the stock.
When a stock breaks support, it should continue down.
Look at the chart on CSCO today.
CSCO traded lower and gapped down at the opening taking out all stops and
looked like it would fall further.
This is where the divergence came in.
After the first hour, CSCO stopped on a dime and started rising. CSCO never
looked back.
CSCO closed near its high and traded higher than yesterdays high.
A follow through in the morning would be a daily reversal pattern too.
Many stocks had similar patterns, as CSCO and a follow through day for the
market on Friday would be favorable for the entire market.
I would Buy CSCO here.
I would place a stop at 62 3/8.
