Forum Archive Index - November 2002

[Phaedrus <Phaedrus@techemail.com>]

T100,
     You don't say what the technical basis of your buy signal was, but I 
wonder if it was DMI derived, +DI>-DI and ADX>-DI perhaps. This would be a 
valid signal from an excellent system, but whether your signal came from this 
or some other trend indicator, I would not have acted on it. My reasoning is as 
follows :- STU is not trending at the moment. It is in a $2.50 - $3.20 trading 
range. This can be easily seen from the chart, but in any event, the ADXR has 
not gone above about 25 all this year, indicating the absence of a clear trend 
of any magnitude. In circumstances like this, trend indicators are unreliable.
 Your buy signal came when the price was about $3.14. This is just below the 
high in March (circled) In other words, you are buying just below resistance. 
It is far more logical to buy on a breakout above previous resistance. (or at 
support) True, you will pay a few cents more IF you buy, but should prices fail 
to break through the resistance, continuation of the trading range is about all 
you can hope for, for a while. Worst case scenario would be the formation of a 
Double Top (bearish) followed by a downtrend breaking below the lower level of 
the trading range. Now, we don't expect this, because statistically, the most 
likely outcome of this trading range is an upside breakout. But why run the 
risk? In any case, we do not know how long the trading range will continue - 
this stock could spend years going sideways.
 STU is in a trading range. We all know that these are a continuation pattern, 
thus usually resolve themselves by resuming the trend that preceded them. There 
are several ways of handling them.
(1) Short-term traders attempt to trade them, buying near the lower level 
(support) and selling near the upper level (resistance)
(2) Long-term traders hold, on the basis that the long-term trend is up, and 
these are a continuation pattern. (Bullish in this instance)
(3) Medium-term traders stay out, but would buy any breakout above the upper 
level of previous resistance.
 Your buy doesn't fit into any of these categories. Don't forget that you can 
see things that most any technical indicator can not readily detect. You can 
see the strong and clear resistance at about $3.20 - the DMI or whatever 
doesn't know about such things.

 So, looking at the chart, there are several obvious buy points :-
(1) At or near the $2.50 support.
(2) On a clear breakout above $3.20.
(3) On any price action "respecting" the Long-term trendline.
 The neatest thing you could hope for would be (1) and (3) combining to give a 
buy at around $2.50 in a couple of months. Who knows.

There are obvious sell points too :-
(1) Any break of the long-term trendline
(2) Any break of the $2.50 support level.
(3) Any fall below $2.40 would have grave implications.

 T100, if you have a system that you are comfortable with, that appears to be 
quite profitable, my advice would be to stick with it. Don't change a thing! 
It's the overall results that are important, not any one individual trade.

  Regards,
           Phaedrus.

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