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[start]                                                                                       [ 87 ]        
bars indicate the nature of trading during a specific period of time. In the buy example, a stock that makes a new high as compared with the previous days price action can be strong. I say "can be," because the strength of the move is dependent upon the nature of the price bar. If the price bar is bullish - the close is higher than the open -1 will stay in the trade. However, if the stock finishes with a bearish close, despite making a new high, I will become very suspect of the strength of the move. I will wait another price bar (the next day) to examine the following action. But, I will be prepared to sell, since the price action is potentially weak.
Comparing price action components in combination with Fibonacci numbers can indicate good areas to take profits. Although this technique is somewhat subjective, it is important to analyze closely each price bar to gauge the true strength of a stocks move.
Another factor I consider in determining when to take profits are my reactions to a trade. Although it has taken me some time to develop these signals, there are certain personal rules that I maintain that indicate when to sell. These are very subjective, but I have found these signals to be very reliable under these conditions.
When I am in a profitable trade, I can get caught up with all of the money that I am making. The problem with this "money-made" mentality is that I only receive the profits, if and when I close my position. I had to learn this lesson the hard way, as I have let sizeable profits become substantial losses on more than one occasion. Therefore, when I find myself mentally calculating my profits, I know that I am close to closing the trade. Although this is a very subjective rule, it has taught me the importance of not getting too greedy.
Another consideration is to take profits after a sizeable gain has occurred in a short period oftime, regardless of "future prospects." If I have a stock that has made a significant move in a day or one week, I will be inclined to take the profits. I had to leam this rule the hard way! I have been in many situations where I was up a great deal of money, only to give it all back. Getting bumed by these experiences has taught me to take profits sooner rather than later. Although I have "left money on the table" in the past, this practice has increased my profit consistency.
Contrarian Thinking: "Dont Believe the Hype!"
Another personal rule is regarding the news media. I maintain this attitude whether I am entering or exiting a trade. If I have a profit in a stock that is in the news, I will assume a contrarian attitude and get ready to close out my position. Such contrarian thinking will help avoid getting caught up in the hype.
When such publicity coincides with a potential trade set-up, it has been my experience that the following price action usually moves counter to the news event. For example, if a bullish news announcement coincides with a bearish set-up, I will wait, let the stock rally a little while and then execute the trade.
Major announcements such as a new product launch, eamings releases or stock splits/buy backs might affect a stock for a short time. However, the following price action eventually moves counter to the news event. These situations are nothing more than hype. After the hype settles, a reversal in the following price action is the usual result.
Developing a contrarian view to news items might take several experiences to be able to think in this fashion. It is fascinating that a contrarian view to widely publicized stocks corresponds so frequently with many harmonic set-ups.
I suggest that you track a few stocks and the corresponding news items. For example, lets assume a stock has a bearish Butterfly forming on the price chart. At the same time, there is an overwhelming amount of good news, such as increased eamings estimates or improved revenue growth, regarding a company that is making its stock rally strongly. You would logically assume that this is a strong stock and probably a good buy -especially because of the good news being publicized. But, according to the price action, the stock is at the 1.27 or even the 1.618 of the XA leg. The trading mles say: "sell." Meanwhile, hesitation or worse, trade avoidance, occurs because you really buy in to the news story. Well, I would like to impart a famous stock market quotation to you:
"If you buy the headlines today,
you will be selling newspapers tomorrow."
This conflict between what you see in the numbers and what you believe will cause hesitation or trade avoidance. Unfortunately, it really can
only be overcome through actual experience. After you experience "missing out" on a few harmonic trade set-ups that worked out because you believed the news, you will begin to "trust" the numbers.
I have included this example of Amazon.com because it clearly illustrates this concept. The stock rallied significantly in the weeks leading up to the bullish news announcement. Amazon.com formed a fantastic bearish AB=CD that coincided with this bullish news release.
J.P. Morgan Initiates Coverage of eTailing Sector, Amazon.com
BUSINESS WIRE - December 09, 1999 13:01
SAN FRANCISCO, Dec 9, 1999 (BUSINESS WIRE) - J.P. Morgan Securities Inc. equity research analyst Tom Wyman today initiated coverage of the eTailing sector with a 40-page industry report. He also launched coverage of the following stocks:
-- Amazon.com (Nasdaq:AMZN) with a "BUY" rating and a 12-month price target of $160
In his report, "eTailing and the Five Cs: Building and eTailing Megabrand Through Content, Community, Customization, Commerce and Customer Care" Wyman calls eTailing "the new shopping paradigm that will forever change the way goods and services are bought and sold." However, he adds that not all eTailers are created equal: "The competitive pricing of the Internet and low barriers to entry mean that in the emerging eTailing battle, brand equity matters as never before. Those that create discount-oriented coiranerce-only web sites will likely become roadkill on the eTailing superhighway."
"Competing on price is not a sustainable competitive advantage over the Internet in our view," says Wyman. "We believe the winners will be those eTailers that build their brands by creating a destination online store experience known for great selection, information, customer service and prices that meet - but do not necessarily beat - bricks-and-mortar-prices."
Copyright (C) 1999 Business Wire. All rights reserved.
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