Trading requires a mix of patience and aggression.
There are times when you've got to be aggressive if you want to make any money, and there are other times when you've got to be patient and do nothing. The toughest task can often be to tell the difference between the two.
In my regular
column, which will be published later this morning, I mention the unfortunate fact that most people do the exact wrong thing at exactly the wrong time. They sell when they should be buying, and they buy when they should be selling.
That's the nature of trading, in which it pays to stay in phase with the trend but to do the opposite of what the crowd is doing. We buy uptrending stocks on the dips that occur as a result of other traders selling the stock. We sell downtrending stocks that advance in reaction to an oversold condition.
That leads us to
-- a stock that appears to be transitioning from a series of higher highs and higher lows to a series of lower highs and lows. But when we see the pattern, we need to be patient for the best entry.
Let's take a look at the chart.
Notice how Arrow shares had been bouncing along the 50-day moving average within a healthy uptrend. But on Wednesday, the stock broke below the 50-day moving average, and also fell below the prior low on heavy volume, closing at $39.78.
But this lower low does not mark the time to short; rather, it marks the point at which we can expect the stock to rebound in an oversold bounce. I'd suggest waiting for the stock to snap back to test $41 before shorting.
Arrow Electronics (ARW) -- Daily
Anything around, say, $40.90 or so would be a low-risk short entry because of the proximity of the buy-stop. Put the buy-stop up at $42.10, just above the June high. If the stock moves that high, you don't want to be short.
My downside target for this stock is $35.
Updates on Open Positions
- Assisted Living Concepts (ALC) - Get Report: The stock offered the short entry at $11.60 on June 1, with a buy-stop at $12. The stop can be lowered just a bit, to $11.90. Shares closed at $11.26 Wednesday.
- Lam Research (LRCX) - Get Report: The short entry of $53.80 was hit on May 31. The original buy-stop was $56.05, but that stop should be lowered now to $55.05. The stock closed at $52.59 Wednesday.
- Mattel (MAT) - Get Report: The May 31 market open offered a short entry of $27.75. The stock is trending lower, with the stop set at $28.70. That stop remains unchanged.Mattel shares closed at $27.35 Wednesday.
At the time of publication, Fitzpatrick held no positions in the stocks mentioned, although holdings can change at any time.
Dan Fitzpatrick is the publisher of
, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback;
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