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 September 15, 2004 Commentary (mid-week
edition)-
Today I'm going to follow up on the GOOG
play. This one is such a classic for this type of trading that it is worth
looking at in some detail. It is price action like we are about to review that
convinced me that this simply just isn't random price movement. As I've said
many times, I can't 'scientifically prove' that there is anything whatsoever to
Fibonacci and pattern trading. Each person has to decide for him or herself if
there is anything to it, and if it is felt that it can help his or her 'Trading
Plan'. For me, there is no doubt at all what I think.
Let's go back
to GOOG as the pattern began to complete. Recall that I posted this
before the pattern completed, in the September 1
commentary. I had been watching it since it began to roll over at the C
point on August 27.
GOOG began to move off the top grouping very
strongly. This was enough to trigger many pattern traders into a trade right
there. I prefer to wait for an entry trigger on a lower timeframe, as outlined
in Kane Trading on: Entry
Techniques. For me, this is a key aspect of my pattern trading. In this
case, I wanted an entry trigger that was on the higher end of the confirmation
scale. Let's move ahead and see what happened from here.
The arrow points to the approximate area
where I got an entry trigger on the lower timeframe. It's a bit difficult to
show the correct spot on this higher timeframe. GOOG continued up from there,
and then rolled back down. My stop was set just below the top grouping. GOOG is
obviously choppy and wild if I focus too closely, so my management plan was to
allow for some development with this play. So far, though, at this point it
looked good.
This is where GOOG was when I followed up in the September 8
commentary. Here's what I said then: "GOOG came right down to the upper
grouping and reversed nicely. It gave a pretty good entry trigger on the lower
timeframe, and then came back down to try and shake the tree a bit. The price
action never reached anywhere near a technically placed stop, say, just under
the top grouping, for example. GOOG has since been chopping its way higher. So
far, I'm pretty happy with my position with this one. Barring a big gap down,
this one is close to a 'scratch at the worst' play, which is exactly where I
like to be."
Let's see what happened shortly after this point.
GOOG popped nice after that, and I went full
into management mode. I planned to give this one some room, but the stop was
moved up and the scaled exits/trailing stop plan that I use was put into place,
as outlined in Kane Trading on:
Trailing Stops.
Those that follow me know that I pretty much don't use
any kind of 'profit target'. I have no idea where or when GOOG might stop. I
set the management plan up, and then let GOOG tell me when. For those of you
that are new to this column, I'll wait a second here before I go on so you can
pick up your jaw from the floor, as I'm sure that was what I just
heard.
Now that we are all collected again, let's look at GOOG after
today's close.
That pop up was just the start. GOOG gapped
up after that, and has been smoking ever since. It took out the all-time high
today before pulling back. Using the most sensitive scaled exits/trailing stop
plan that I would use in this kind of play, this one has only triggered the
first scaled exit near the close today. (Sometimes I use discretion, though, in
a case where the run is so strong, and scale out of more than is implied by the
'rules' of the particular scaled exits/trailing stop strategy.)
Maybe this is
it for the run. Maybe it gaps down and then drops to new lows. I have no idea.
I can't tell the future. That's why I have the type of management plan that I
do. And if you are still hung up on trying to know the unknowable future,
please re-read the free article The
Myth of 'Predicting' the Market. For me, it's not about predicting the
future; it's about finding areas where I have a small edge, and capitalizing on
that small edge with a comprehensive 'Trading Plan', one that has small edges
in all the various aspects of the plan.
My book series was written to explain just
how I do this. I want it to be clear that if you attempt to understand my
methodology and you do it by studying only some of the pieces (or worse yet,
somehow think that you can understand it by just reading this column), you will
not have the entire, holistic picture of what it is that I have put together.
In many ways, I think that is worse than just passing on studying the material
altogether.
If you don't want to do it right, perhaps it is better if you don't
do it at all. Yes, I want to sell books, but in reality they are all part of a
grander whole, and that whole can't be seen without all the pieces. I have
considered only selling them as a set, but for now I'll keep things as they
are, and just make my case here. And since most readers are buying full sets, I
am really talking to the minority here. I can see all the 'regulars' just
nodding in here…
The next commentary will be the weekend
edition, posted by Sunday.
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