Odds Favor Titanium Metals' Uptrend

As year-end approaches, many traders are looking at their performance and feeling like they just didn't do as well as they should have in 2006. Of course, I look back at every single trade and feel that I could have done better. I look at the chart post-trade and can always spot the exact top and bottom. The pattern is distinctive; it's called the "woulda, coulda, shoulda" pattern. Easy to see, but tough to trade profitably.

Looking back at 2006, it's now so obvious that the low was back in July when the S&P 500 failed to tag 1220, a slightly higher low than the June trough. You're telling me you missed it? You didn't see it? Well, how about the mid-August breakout above 1280? You know, the one that completed a double bottom and paved the way for the dramatic uptrend that continues to this day. You missed that one, too?

Here's the problem: There's always a bump in the road right around the next corner.

Many traders like to see some confirmation that their analysis is correct. They want to buy at support but need to see some evidence that support is holding. But that evidence often takes the shape of a dramatic snapback rally that runs along without you. You missed the move but vow to capitalize on the next higher low.

Can you see the pattern? Your performance lags because you were sitting on the sidelines while the market was chugging along. I'll often refer to a "low-risk" trade in my columns. In my book, a trade is low-risk when you can enter at a point that is extremely close to a level that, if hit, proves you are wrong and prompts you to take a small loss on the trade.

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At the time of publication, Fitzpatrick was long the S&P 500, though positions may change at any time.

Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif., and contributes to TheStreet.com Short Advisor. 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.