Tuesday

Stocks, Technical Analysis

TheInflationist Makes Money Sleeping

Summary: $1300 Profit (closed half long position - $5/pt DJIA)

The Inflationist took $1300 profit yesterday closing $5/point of Dow Industrials at 8200 (entry 7940; exit 8200 = SR Magik Number), and left the other $5/point open. The market crashed as soon as it touched 8200(exactly where the resistance is according to trader Magik), back to a low of 8030. TheInflationist failed to re-long at that point - we were taking a nap and failed to re-establish our full long position (we still have half our position open). The Dow Industrials is back at 8210 at the time of writing - up 1.2% in after hours trading. Those who follow us will recall our Rule: “The Market Seldom Moves in One Direction”. So it would be wise to protect profit at this point as it is almost certain the Dow will pull back before going higher. TheInflationist has yet to perfect the strategy of getting back in after exiting a position (protecting profit by setting up a trailing stop loss). We need to fine tune our trading strategy - question is:

1. What gap do we put our trailing stop taken into account the current volatility? The bigger the gap is, the less likely one is to be taken out from the volatile swings - the price to pay of course, is the loss of profit. Risk management is the key. TheInflationist does not believe in actually closing out on a profitable position - Rule #5: Let your profits run. 
2. When do we re-enter once our position is closed? This is a difficult question. Some would reenter where support is - and hope that market bounces between resistance and support and you would have made 2x instead of x. Those who are VERY confident of the direction of the market may wish to re-enter sooner. Some would be happy shaving off a few points (every point below your exit actually lowers your original entry position). The problem for beginners (we sometimes fall in this category) is: You are more likely to close out a position in the red than a profitable position. So, if you got in a long position at 7900 and took profit at 8200, then re-entered at 8100 (your net entry is actually now 7800). Now the Dow falls back to 8000 - so your position now is flashing red at $1000 (assume $5/point)! (In actual fact you are still very profitable, up $2000). The faint hearted would close out, often only to see markets recover! (The right thing to do, of course, is to enter more longs!) 

TheInflationist will reassess our numbers for tonight.

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