Hi Day Traders,

This week's tip has to do with recognizing the short
term trend and entering on a pullback in that trend.

On 8-3-2000 I was looking for a reason to get long
because the market gapped down below the previous
day's range and could not continue to sell off much
after the open. There was a breakout above the first
fifteen minutes highs which then pulled back about 70%
of the day's range. The market then made another new
high to 1442.50, breaking above two of the adaptive
moving averages that I watch. My DC Osc+ had also
turned positive so I was looking to buy the pullback
to these averages and just managed to get in with a
1439.10 limit order. The low of the move was 1439.00.
We exited soon after at 1445.80. In hindsight it was
2.50 points too early.

At 11:56 EST, we bought 1445.00 and were stopped out
when we moved our stop up to 1444.20. At this point
I was hesitant to risk much because the gap had not
been closed, but it had come close. If it was going
to turn down, it would most likely have been from
this level. Sometime later though the market rallied
to 1455.50 and there was little question that it
would go higher.

At 1:57 we had a buy limit order waiting at 1449.60
where two of my longer term adaptive averages were
and the market made it easy for us by dropping to
only 1449.50. I took profits way too soon at 1454.30
because I thought we would pull back from that level
before going higher and that we would be able to get
back in. The market did not agree and just kept
climbing. Don't you hate when that happpens? 

At 2:45 I had a perfect buy signal from my "Juice"
indicator which I failed to take for some reason.
Probably because we had a lot of profits that I didn't
want to risk giving back, but you really should take
those perfect setups.

One other thing I want to mention is that you have
to learn to let your profits run. As I mentioned, I
took profits too soon every time and yet I captured
6.70 points on the first trade and 4.70 on the second.
From my conversations with most traders, and from my
own experience, most traders would have taken profits
on those trades much sooner. 

The old broker's myth, 'You can't go broke taking a
profit' comes into play and when they get up 2 or 3
points, they can't stand giving any of it back.
Well, let me assure you, you CAN go broke taking a
profit. Not on that trade, mind you, but slowly as
your losses overshadow your gains.

Learn to hold for the bigger moves. That's why you
are trading with the trend. 

Give the trend a chance to work for you.

Yes, I tried to get a little cute on that second trade
and take profits with plans to get back in, but the
trend prevented that from happening. 

Taking the profit when I did on the first trade was
the correct move, because the market was nearing the
point where it may have become exhausted and the gap
was not closed.

Yours for success,
Ellery Coleman

The trades referred to in this article are trades that were sent to our Choice Day Trades subscribers as they happened. We have no way to verify whether or not all or any of these trades were taken in real time since we did not take them in our account. Therefore they should all be considered hypothetical.

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