This column was originally published on RealMoney on Aug. 25 at 11:00 a.m. EDT. It's being republished as a bonus for readers.

Trading is always a challenge; though isn't it true that the challenge is greater during certain periods, like now? When the vast majority of money managers aren't quite sure about where to put their money, it's really tough for little guys to do well because many strategies rely on following the institutional money. And if the institutional money can't really figure out where it wants to go, there's hardly a point to following their trail of bread crumbs because every trail quickly leads to a dead end.

Read that last sentence again and pick out the key word: quickly. The key to succeeding in such a frenetic market is to reduce your holding period. Tighten stops quickly, or just close out a position at the first sign of a reversal.

You might think that trading so skittishly is just surrendering to the market. And you'd be right. That's the idea: Take what the market is willing to give you rather than insisting that the market give you what you want.

With a shorter time frame in mind, let's also focus on getting to the stocks we want to trade. Rather than just trying to hop on any northbound train that comes along, do some work and look at industry groups. Focus on those groups that are in sync with the overall market, then look for the strongest stocks in that group. Start thinking in terms of money flow. Stocks tend not to be bought in isolation; they're bought along with the others in their industry group.

You'll hear, for example, "They're buying the semis today," or "Energy stocks are selling off." Some stocks within a group will be leaders, some laggards. But the whole group tends to move together.

Put this idea into perspective using semiconductors.

Thursday, I mentioned that the

Semiconductor HOLDRs

(SMH) - Get Report

was close to a breakout. As I rummaged through the many stocks in this broad group, I saw that many had a common pattern: a prolonged downtrend that has recently reversed in a meaningful way. If money continues to flow into the semis, many of these stocks should move much higher. Let's look at five of them:





(RMBS) - Get Report









(NETL) - Get Report

I last looked at Broadcom in

June when the stock bounced off $29, noting that the weak bounces that had been occurring during the decline just weren't enough to stem the tide. Now, however, the picture tells a different story. After filling the July gap a couple of weeks ago, the stock has been trading within a tight congestion pattern around $30. Note how the volume is drying up during this sideways churning process. That's very helpful when assessing any move above current resistance. We want to see any breakout accompanied by heavy volume.

This daily chart of Rambus shows how Thursday's high extended above the 20-day moving average (the middle Bollinger Band), while the prior top in late July never even reached the middle Band. So we've got a lower high in terms of price (an "absolute" high), but a higher high in relationship to the 20-day moving average (a "relative" high). This type of divergence often precedes a turnaround in the trend.

The extremely heavy volume that accompanied the past two days of advances lends more credence to the reversal. When a dramatic advance within an established downtrend is accompanied by heavy volume, then we know that there is something more to the move than just short-covering.

If you're long, stop placement will be tricky because the current price is high above the last established support of $11. However you play it, never let a profit turn into a loss.

Check out this daily chart of SanDisk. There's no mistaking the July reversal as anything other than a sign of strength. We look for a wide-ranging day with the close at or near the top of the range on extremely heavy volume. The following day, the stock gapped up around $6. After several weeks of churning, the stock once again moved higher.

I've highlighted the current consolidation range, between $50 and $52.50. The bulls are now pushing the stock higher on heavier volume. If you're long, there's no reason to sell, but it would be smart to protect profits with a stop beneath current support. The path of least resistance is up; I'd expect this uptrend to continue until it hits the May price levels where a lot of stock changed hands. That's probably the next area of significant selling, and where I'd look to start scaling out of a position.

Atmel is consolidating some pretty nice gains. Back in October, the stock was at $2; now it's testing $6. Because the current trading range is so wide, I think the entry with the lowest risk is on a decline back to support. Any pullback below support tells you that the trend is reversing and you can close out your position with a small loss.

If you instead bought a breakout above $5.75 or so, then any reversal would leave you hanging. You wouldn't know if you were early or wrong until the stock retested support around $4.30. That's way too much risk, in my book.

But stocks rarely do what we want them to, so if the bulls do push Atmel higher, another way to contain risk would be to buy only a partial position. That way, you could participate in the move without risking too much trading capital. Or, you could just sit on your hands and wait for a trade that has a better risk-reward profile.

NetLogic appears to have effectively reversed the downtrend over the last few weeks. The stock has recently tagged the upper Bollinger Band for the first time since April, and is now consolidating recent gains. While a breakout above $30 marks the beginning of the next leg higher, I'd be more inclined to take an entry right about now, with a stop just below current support. If the stock falls back and stops you out, you've taken just a small loss -- just like a good trader should. But if you wait and buy the breakout, the stock could pull back for more than $2 before you know whether you're early or wrong.

Be careful out there.

At the time of publication, Fitzpatrick had no positions in 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;

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