Wednesday, March 18, 2009

Trading Lab Recap- Bottom Spotting

Identifying Overhead Resistance:
Prior Pivot Highs or Lows (support/resistance)
Moving Averages
Fibonnaci Retracements
Trend lines
Overstretched (Date & Range)

3 types of bottoms or pivot lows:
Minor
Intermediate
Major

Signs of a Bottom:
Reverse Head & Shoulders
Slowing Momentum (cupping or saucer pattern)
Double & Triple Bottom
Moving Averages switching directions help confirm

Remember, bottoming is a process not an event. It takes time to heal the market as well as the economy. The 2000-2003 bear market bottom serves as a prime example.

Trading Vertical Credit Spreads:

Market in a downtrend: Stick primarily to bear calls
Market turns more neutral: Consider entering both bear calls & bull puts

Trailing Stops:
Trail by $ amount (points)
Trail by a % amt.

Buy stock @ $50
Trail stop of $5 ($45 at start)

stock goes up to $53
trail stop will move to $48

Trailing stops ratchet up, not down.
Can be useful if you're not going to be able to monitor the market, but I prefer to manual move my stop based on support/resistance, rather than an arbitrary number.

Tyler -

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