Trading Without Gambling by Marcel Link

Author:Marcel Link
Language: eng
Format: mobi, epub
Publisher: Wiley
Published: 2010-05-10T20:00:00+00:00

SAME MARKET, TWO VIEWS

By my definition, a good trade is one that is well thought out win, lose, or even not taken. I’m going to give an example of how two people looking at the same market at the same time can have two different opinions for a trade that can both be considered good trades with little gamble in them. I’m going to stick to the Dow and a little bit further out from the trade in the previous chapter.

GOING LONG

Jan. 7, 2008

We are at close to a crossroad in the market where the long-term uptrend may be ending and the short-term downtrend may be taking over. I know a lot of the news is bearish, which can weigh the market down, but I tend to discount the news and trade technicals over the news when they give me different opinions. I start by looking at Figure 10.2 again. On this weekly chart of the Dow Jones you can clearly see an uptrend going back five years. That alone should make you want to think long. If you look at the stochastics in that chart you will see it is getting close to bottoming out and is at the same level it’s been for the last three bottoms. So the down move may be ending very soon, presenting a great place to go long. The horizontal line, which represents the previous low, seems to have held with the latest drop, another indication the market may be done going down.

Now look at the daily chart (Figure 10.3). There seems to be an area of support and resistance between 12,500 and 14,000. We are at the bottom of the range, with prior congestion in the same area as at the bottom of this last down wave. These are two good signs of a possible return to the upside. When you add the possible turnaround in the stochastics, you have another indication. However, it’s still too early to jump in. For starters, before making a trade you need to measure the risks and rewards of it.

As far as potential profits, there are a few targets you can look at. The first would be above point A, with the second being above point B; however, the ultimate target would be much higher and I would use Fibonacci projections to get it. Due to space limitations I can’t show it on the chart, but the low to high of this five-year move is about 6,800 points. I would then multiply 6,800 points by .38, giving me about 2,500 points, and I would add that to the previous high of 14,200, so that my first super long-tern target would be 16,700. This is a long-term expectation and may take two years to achieve, but it’s a possible target that I would consider staying with a long bias until it’s reached. All of these targets are not “get out when reached” targets, but are target areas where I would reevaluate. If a target gets hit and it still looks bullish, I obviously will stay in and come up with a new target level.

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