Get your pen and paper ready. I am about to share one of my best-kept secrets. This simple technique will revolutionize your trading performance and improve your bottom line. I guarantee it.
Here it is: Don't trade when you can't measure your risk, and stand aside when you can't find your edge. That's it. Simple enough?
Friday's unemployment report increases danger for all types of overnight positions. While it might feel good to roll the dice and hope for the best, standing aside is an excellent strategy for Thursday night. And chances are you won't be alone. Many professionals will sit on their hands before this market-moving report.
There are always great setups to trade. The problem is, regardless of individual trends, equities follow broad influences most of the time. The 400-pound market gorilla can cause the most perfect pattern to fail badly. Of course, your individual stock might go against the grain at any time. But you'll never know when that time is.
The labor report is too risky to put on a swing position that might last just a few days. Better to see the report first, and then gauge the market's reaction. You can always have a few setups ready to go. And if the market moves too quickly to find good entry, you've got the whole weekend to get over feeling sorry for yourself.
Trading profits depend on effective risk management. Most times, chart analysis does a good job outlining the reward/risk ratio, and uncovering setup obstacles. But external events take charge during key times of the month and the year. Drill these dates into memory and stay out of their way. While we're waiting for Friday's bell, however, let's take a look at some possible setups.
hit several all-time highs this week. That's quite a feat in a nasty bear market. It climaxed Tuesday and is starting to pull back. There could be a strong bounceback up toward $14 after it finds support.
But some caution is in order. See the ugly reversal day and red volume spike? This weakens the trade's profit potential because it trapped a lot of warm bodies right at the top. It's safe to assume they're not too happy about the current pullback, and will be looking for an exit as soon as the stock bounces.
How can we locate the pivot low and jump on board at the right time? See the simple cup-and-handle pattern just above $10? Focus entry at this level, which also marks the 38% retracement. Pullbacks frequently return to the point of last support. On top of that, the market number "10" and 20-day moving average are rising into the same zone.
Bradley becomes a dangerous trade if bought too early. Overhead supply at $14 could inhibit a strong bounce. So the best bet is to keep an eye out for a deep retracement, but avoid the trade if it never gets there. Also watch out for a down gap that doesn't fill immediately. That becomes new resistance and can kill the position.
This could be a holiday season to forget. Investors have been selling
and other retailers since late summer. JCP gapped down Tuesday on the weak consumer confidence report, and is now bouncing at support. Notice the two rising lines drawn over the broken double top. They converge with the 50-day moving average violated by the gap down. If we pick our spot carefully, we may get a ride on the J.C. Penney escalator all the way down to the bargain basement.
One thing we're looking for in this short sale is an exact inversion of the preceding rally. In other words, we expect J.C. Penney to fall at about the same angle that it rose during the September bounce. Just a little quirk we often see in double-top failures.
There's no rush to jump into either Bradley or J.C. Penney. The big labor report could undermine or enhance either swing trade. So lets stand aside for now and enjoy the tranquility of going flat into Friday's volatility. The trading bell will go off soon enough.
Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called
HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At the time of publication, Farley held no positions in any of the stocks mentioned in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to
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