This column was originally published on RealMoney on Feb. 8 at 12:39 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

I've been having some interesting dialogue recently with some regular readers. One particular topic that seems to keep popping up is managing the most essential component of successful trading: yourself.

If you are not in control of your own actions, any success you have will surely be short-lived. Trading on an impulse is a path to disaster, and the length of the path is unknown, but the destination is certain.

Trading behavior should be based solely on the data in front of us -- whether fundamental or technical. Sure, there is some "feel" and "intuition" involved, but intuition is a byproduct of experience.

Impulse trading is not based on intuition; it's guessing and nothing more.

I have been in a running dialogue with a great guy who is having a bit of trouble with his discipline. At one point or another, everyone deals with the discipline demons -- they're out there. But there is something to be learned from everyone, and this trader's recent difficulty is certainly grist for the mill.

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Over the past few days, he opened up long positions in

Lazard

(LAZ) - Get Report

,

Rackable Systems

(RACK)

,

U.S. Global Investors

(GROW) - Get Report

and

Century Aluminum

(CENX) - Get Report

. However, less than a week ago he was focused on taking a break.

If we look at these four stocks, a common theme will play out. But first, let's use the

S&P 500

as a frame of reference.


The S&P has been in a nice uptrend with noticeable highs and lows. The uptrend is obvious. However, if you bought during the last week or so, you were bucking the odds. The price action was bumping against an established trend line, and the stochastics were overbought (a good thing if you are a bull). But overbought stochastic readings, combined with impending resistance, make for a low-percentage entry.

Simply put, it hasn't been a favorable time to be buying stock. What about time frame? If you bought during the past week or so and are feeling pain from the market decline, then you are a short-term trader. Those with longer-term time frames don't feel pain shortly after they've bought. They "set it and forget it."

As we look at the four stocks below, keep in mind that the long entries were probably made within the last week or so.


Lazard is moving higher, but it is only now time to consider buying. The uptrending resistance line was tagged at the same time as when the stochastics reading was at an extreme high.

Now, remember that this type of behavior is indicative of a very healthy stock. However, this dynamic does not create a buying opportunity; it's the precise setup that those who are already long the stock have been waiting for. They'll "trade around the position" by unloading some and waiting for a lower re-entry.

Don't be the guy to let them get out of their position. Let somebody else do that. Be patient and buy on a dip. It always comes.


On Monday, Century Aluminum blew out of an already steep uptrend. Volume was also about twice as much as the 60-day average. Is that the time to be buying? Again, this one is doing what strong stocks do, moving higher at a rapid rate. But this stock is "tough to buy."

How do you buy responsibly when the stock just begs for profit-taking? You wait for a pullback to enter. If the pullback never comes, that's OK -- you missed the trade. It happens. Get over it. There are almost 7,000 publicly traded stocks, so you should look for the next setup, not the last one you missed.


Rackable jumped up last Thursday on great earnings. Don't let the gamblers, who were holding over earnings in anticipation of a good number, profit from your late entry. Let them take somebody else's money in exchange for this hot stock. Instead, wait for proof that new demand exceeds existing supply. If the bulls are aggressive enough in their buying to push this stock above last Thursday's intraday high, then the odds of further upside are dramatically increased. If not, then move on.


This stock broke out from around $16 a couple of weeks ago. Last Friday, it tested $20 on good volume, but there has been no follow-through. No Man's Land lies between $17.50 and $20. Until buyers push U.S. Global above $20 (or allow it to fall back to retest the breakout), there is no short-term trade here.

What's the common theme in these four stocks? These stocks have all advanced significantly over the past few months, and their uptrends are mature. Over the past few days, these mature uptrends have hinted at follow-through that never materialized.

All of these stocks may indeed move to new highs. But mature uptrends require the most disciplined of entries -- they will kill impulse traders. As I have noted in several prior pieces, it's important to consider who is on the other side of your trade, and what the probable motivation for selling is. Do that, and you'll avoid a lot of land mines.

Be careful out there.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider GROW to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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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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