How To Handle Reversals

Squirrel,

From reading your above post, as well as some of your other threads, it seems to me like you're trying to become the perfect trader, without ever risking a penny.

In my opinion, the best way to learn this business is by participating in it. Just as a baby learns to walk by first falling many times, you need to get started in trading in order to learn how to trade.

There are several things that will happen when you start trading that will NEVER happen by reading books, newsgroups, etc...

1) You will find out practical problems associated with your chosen style of trading. By this, I mean being stopped out early, paying large spreads to get in a position, the mounting costs of commissions and how they can affect your bottom line, etc.

2) By trading, you'll soon discover which style of trading best suits your personal taste. You may find that scalping for 1/16's or 1/4's makes you most comfortable, or perhaps you'll find that intra-day swing trading is best for you.

3) Once you actually begin trading and run into various problems, post those problems here, and I'm sure you'll get plenty of sensible advice from those more experienced traders who participate in this forum.

I've only been trading for about a year myself, and if I can give you one bit of advice it would be this:

Find a strategy or two that you feel most comfortable and stick to it. Use sensible money management (stop losses), and don't let fear and greed overcome your common sense.

I think it's absolutely crucial that you stick to just one or two strategies. Otherwise, you'll find yourself hopping from one to the next, while your funds are slowly depleted.

You don't have to start big. You can trade small lots of 25-100 shares in the beginning until you build some confidence.

Finally, no matter how much you try to prepare yourself, you will lose some money in the beginning, but it doesn't have to be a lot. I personally don't believe the hype that one must lose $25,000 or more to learn the ropes. If you start with smaller lots, you'll be able to learn just as well, with much smaller losses.

Even the most experienced traders lose money once in a while, or have a bad losing streak. The important thing is to make more than you lose in the end.

Good Luck!!!
 
To anyone:

When shorting a stock, in this case I'll use LRCX for an example, I identified it as a short last Friday night.

I use a number system based on W.D. Gann, which may only matter to me here, but the number is 29.63 that I see it wanting to reverse off. In addition, confirmation of a candlestick formation, "shooting star", and/or Doji, reversal pattern.


When I think about how to react to the "What if's":

1. Gap up at open(Continue, reverse)or continue, and then reverse
2. Gap down at open(Continue, reverse)or continue, and then reverse
3. Open at Fridays close(Continue, or reverse)

All in relation to Friday's trading Range, and the stocks immediate index. In this case NDX.(Is it showing weakness that I want?)

I know that if it gaps up above Friday's high,
A) I will wait and hope that it continues, so that I may short it at 31.25(the next resistance)
B)Large enough gap I will short the open, especially if it gets to or near my next resistance number.
C) Wait 10 to 30 minutes to get a feel for market direction.

I know that if the price action opens with no gap, or gap down, I will wait, and look for a pull back to and holding Friday's HOD for a double top reversal, or the mid point of the upper tail, which seems to be a common reversal point.

I would like any input as to agreement with my thinking that when a price action stalls at a strong support/Resistance based mostly on movement traveled whether, or not, leaving a long candle, or gapping to form a candlestick reversal pattern(doji) the first day, and backed with a large change in volume indicating that there is something changing(like the order flow) I would consider the following day the pivot day of a three day reversal pattern, or in the case of LRCX, the reversal day of a two day reversal pattern. (Please excuse the long sentence.)

But more specifically, when the price action gaps on the pivot day, does it indicate, or favor, any strength or weakness?
 
I look for reversal pattern to trade for 3 to 4 days. In this mkt holding overnight in long positions has stopped this year.

Look at TLGD; 27thMar High 29 Low 26.63

This price action has run from 15.63 to 28.13
It appears that these point are clear support resistance price points. And the market sentiment is bullish.


This may be a setup for a continuation up, or a reversal to the downside. And, noting the decreasing volume.

Based on a breakout theory from the previous days High/Low, and using a trigger of 1/4 pt. I would enter long if the price action hits 29.25, and I would enter short if the price action hits 26.38


Is this a good strategy? Or does anyone have a simulair strategy, or maybe a better type setup? I could use this intra-day, and if EOD I have enough profit, then I would decide to hold as a position trade(swing)

Jeffrey
 
I would look for volume to be strong or increasing as the stock tries to breakout to the upside to confirm the breakout. If volume is weak, chances are the breakout will fail. In that case, rather than wait until the stock reaches the 26 area to short, I would turn around and go short as the upside breakout fails and keep a tight stop loss during the entry. That's just my opinion on that setup.
 
TLGD:

Now that the price action has moved in my favor set trailing stop loss to break even.

Then trail to price tartets 25, 23.44 and 21.88
 
Zboy:

I only looked at the decreasing volume of the last two days to surmise that the bulls order flow has run out of steam. And, as you pointed out, if there happened a breakout hitting my upside trigger, I would check my 4 minute chart to confirm an increase in volume.
 
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