Can It About Hansen

Some traders approach the market as competitors. Each trade is a battle and they are anxious to defeat the guy on the other side. Others take a more peaceful, Zen approach and try to fall into the ebb and flow of the market. They avoid fighting too much and try not to get too emotional.

Have you tried to figure out which approach best suits you? Does one approach work better than the other? I doubt it, because the trading process is the same. Still, being aware of your market approach is important.

If you are a warrior, the crowd is your opponent. You must remain alert and nimble, lying in wait for that time to pounce. On the other hand, if you are Zen-like in your trading approach, your opponent is you. You must overcome your inner turmoil.

But you and the crowd are one in the same. The crowd is made up of you and a gazillion people just like you. All have the same instincts and reactions. If it were not for our common instincts and reactions, the crowd would not exist. So when you learn to understand yourself, you'll also understand the crowd.

The next step in your evolution is to develop a sense of when you should be smack dab in the middle of the crowd, long and strong when the market is running, and when you should stand away from the crowd, selling when others are eagerly buying. That's a tough discipline to master because it goes against our very nature.

As the market moves higher, our instincts tell us that tomorrow will bring still more gains. The crowd's enthusiasm is driving the market, and we need to run with the crowd. But at some magical moment in time, a mature trader starts getting the instinct to avoid following his instinct. When others continue their frenzied buying, the mature trader goes along for the ride as long as possible, but he never really buys into the excitement. He remains disciplined enough to remember that the crowd always overstays its welcome, so he gravitates to the door so he can be among the first to leave when the party is over.

No regrets, no "if onlys," just an understanding that it might be time to move away from the crowd.

---

Let's look at readers' picks.

I know this will get the Hansonians riled up, but I really believe Hansen (HANS - commentary - Cramer's Take) is damaged. I was long for a brief period when the stock looked like it was going to fill the gap, but I dumped it when the bulls couldn't follow through.

In a typical email from a Hansonian, I'll be told that Hansen is a great company that is making money hand over fist, and the distribution deal with Anheuser-Busch (BUD - commentary - Cramer's Take) is going to be just awesome! Then I'll look at the chart and say to myself, "Everybody already knows these things."

I'd spend less time waiting for everyone to catch on to a story that has already been told and more time looking for the next untold story.

Over the last few days, I've received more requests for my take on Apple (AAPL - commentary - Cramer's Take) than any other stock. I've drawn a support trend line that goes back to July. It takes three points to make a valid trend line and we've already got three. This support line currently coincides with the 50-day moving average. I'd buy on a pullback to that level.

A reader long the Nasdaq Stock Market (NDAQ - commentary - Cramer's Take) is considering adding to his position. I believe scaled entries are the most effective way to manage the risk-reward dynamic. You get bigger as the trade moves in your favor, but stay small when the trade is still in question. I'd add to this position -- just not yet. I'd wait for a pullback to the bottom of the trading channel.

An emergency room physician interested in Biosite (BSTE - commentary - Cramer's Take) tells me that virtually all of the blood tests he and his colleagues use are made by the company, including one for congestive heart failure. Simply put, Biosite's products are in demand.

However, as I look at this weekly chart, I see a stock that's ramped 25% since the July low and is now bumping up against some resistance. If the stock turns lower, that establishes the third point on our resistance trend line. Before buying into this obvious downtrend, I'd need to see a higher low.

Brocade (BRCD - commentary - Cramer's Take) has been in jail for the past several years. Unlike a majority of stocks that reversed nasty downtrends in 2003, Brocade has just been chopping around, slowly building a base. At some point, the stock is bound to break out and begin a new uptrend. I just don't know if now is the time. If you are long Brocade, try keeping a snug stop on your position and don't consider buying more until resistance is, well, no longer resisting.

Be careful out there.

---

At the time of publication, Fitzpatrick held none of the stocks mentioned, though positions may change at any time.

Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif. He is a former co-manager of a hedge fund and teaches seminars on technical analysis, options trading and asset-protection strategies for traders and business owners. Fitzpatrick graduated from the McGeorge School of Law and was a fellow at the Pacific Legal Foundation, a nonprofit public interest firm specializing in constitutional law. He also practiced law in the private sector before pursuing trading as a full-time career. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.