This column was originally published on RealMoney on Jan. 26 at 9:02 a.m. EST. It's being republished as a bonus for TheStreet.com readers.
Tuesday's piece on discipline generated a lot of comments from readers.
To recap, I noted that so many traders share a tendency that can tear a portfolio apart -- they expect to make a consistent return irrespective of the market environment. They make the most money right at the top of the market, get used to it, and don't believe it when the market rolls over. They finally figure it out at the bottom, and are in no shape to capitalize on the next bullish cycle.
Many folks commented that they have dealt with this problem many times, and several said they are struggling now. One method of dealing with this is to just take a break from trading. Yes, professional money managers need to be on the battlefield every day. That's what they are paid to do. But private traders don't have the same constraints. No law requires you to walk into a buzz saw every day, especially if you have pockets full of money.
If you find yourself making an inordinate amount of money, do a couple of things.
First, look at the overall market. You'll probably see a full-blown rally.
Second, look back over those same charts and study the historical price action. You'll invariably notice that most strong advances are limited in duration, followed by retracements or consolidation.
Lastly, study your monthly statements during those prior periods of advances and declines. You are likely to find that you gave back a lot of money during the last pullback. If so, then it's important to act differently this time around.
Choose to be out early. Reward yourself with a well-deserved rest. After all, if things seem too good to last, they probably are. So start scaling out when every bone in your body tells you to load up. That urge to buy as prices skyrocket is widespread -- and those who begin chasing stocks do not have an unlimited supply of cash. They are the last to the party. As they arrive, you should have your coat, hat and car keys in your hand. Let them party while you drive home with a pile of cash. You'll find yourself better rested for the next party, and alert enough to get there first.
Now let's take a look at some more energy stock requests:
Peabody Energy is continuing its impressive uptrend. The breakout level is around $90, but this stock is moving in such a strong uptrend that I would be holding as long as the November low is not violated.
Chesapeake is not quite actionable yet. I'd like to see the stock find support for a couple of days and then push above $34. At some point, that will probably occur, and when it does, notice how short the price-by-volume bars are (For more on this indicator, see
an earlier article of mine.) Such short bars indicate a low number of potential sellers. Trading volume was light at those levels, resulting in low emotional commitment. As such, a breakout is likely to run awhile.
There's nothing wrong with Southwestern's picture. I'd suspect that $40 will be tested as support, and I'd be surprised if $40 did not hold up.
Frontier is close to a breakout to new highs. Note the recent tag of the middle Bollinger Band? That's a higher low that's likely to persist for a while. I'd stay long unless that last low is violated.
Devon looks a lot like Frontier. This stock seems to sell off hard on occasion, with significant advances following each pullback. The current chart looks to me as if the bulls will be taking Devon into the $80s soon.
Be careful out there.
Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick has lectured throughout the U.S. on the proper use of technical analysis and options trading. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. 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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