The Truth About Trading Cliches

The famous market clich¿s that I often use are more than just a reason to use my knowledge of French. It's to remind you of the many rules that have kept traders in the game.

I recently heard someone reuse the classic phrase, "When in doubt, get out." A fellow trader laughed and said those old clich¿s were ridiculous. I thought to myself, "No, it's true, they're all true." Most of these sayings are based on the experiences of numerous traders. Over the next few weeks, I'll try to highlight some of the famous Wall Street sayings that may inspire us to refine our trading. This week, it's not a saying, but rather a concept that has become an accepted truth: August is a low-volume month.

I recently heard a radio host say daytraders must really be benefiting from the volatility in the markets. To be honest, I have no idea what they're talking about. I found this week to be particularly slow, and when I review my blotters (a daily trade sheet showing each stock I trade), I see I'm trading less and less. We'll see if the post-Labor Day pickup is in effect this year.

Today, I'll look at two stocks with diagonal trend lines as opposed to other lines I usually use.

Stocks to Watch

Ryanair (RYAAY - commentary - Cramer's Take): I almost never refer to moving averages on my chart, but I will use any viable trend line on a chart. In general, I prefer to trade with horizontal lines over diagonal lines because they're more exact, and it's easier to see the entry points. Yet, I feel it is important to set up multiple alerts on a variety of stocks, because many will just idle and not offer much opportunity.

In the case of Ryanair, it's the 200-day moving average that is in question. With the exception of one move on June 4, which was a gap-down move, the stock has held the trend line on roughly six or seven occasions. The most recent one is on Thursday, when the stock traded down to $41.38. At this point, I'd prefer to watch for a little bit of a bounce, perhaps 20 cents, before going long. There is resistance near $42, based on a previous support area. You'll notice that the stock opened near there. Is that merely a coincidence? I don't think so. Stocks tend to gap to key levels, such as support and resistance. Some of you may feel more comfortable trading the stock after the gap day. The one thing I won't do is hold a stock like this overnight, because it may gap again.

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David Baker is a professional trader and the CEO of The Capital Trading Group, a company that trains and helps to fund individuals interested in trading for a living. At the time of publication, Baker did not have any positions in any of the stocks mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback.