Alexander
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Platinum Boarder
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Watch out for Relative Strength! - 2005/07/01 10:17
Many traders like to watch for stocks that display relative strength versus the overall market and trade those stocks. Part of the problem with this is that many traders all know to watch out for these types of anomalies, so the question really becomes what will act as a catalyst for a subsequent move. Well, how about most of those people panicking out in a giant shakeout before the stock makes its move. From watching many of these stocks it seems that if this does not occur, what tends to happen is that many stocks simply drift south at their own leisure, fooling traders into sticking with it for the impending turnaround that inevitably doesn't appear (hey - suddenly it's a trend in the opposite direction - so much for relative strength). Here is an example that TYMORA was showing had strong relative strength that had a nice little shakeout on the open to act as a powerful catalyst for the stock to bolt higher. Many traders were likely thinking if GM broke its low the would cover or even go short - to which the specialist was very thankful as he could now let them wait in line to get their stock back along with everyone else. That's why you always want to wait for a panic scenario to unfold and let the chips fall where they may before putting down your money because once everyone is flat on their head that's where the best opportunities tends to reveal themselves. Don't be tempted to jump into the middle of the panic as markets always seem to extend out just further than you are willing to bear before you cry uncle. Wait for the spike bottom off a downward trendline and then the trend break for the best confirmation. If you must go in earlier dabble with very small lots because you will likely be too early.
Alexander
ps. In this example, also notice the significance of the pivot points, especially R1 as it first acted as resistance and then support during the course of this move.
Post edited by: qdaytrdr, at: 2005/07/01 10:20
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