Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 21

Three Winning Trades and a Funeral

My ideal discretionary position trade begins with some type of bottom reversal, like a double bottom or head-and-shoulders bottom. Price launches into the sky like a rocket. It climbs and climbs until it cannot climb any higher. Then another reversal pattern forms in the shape of a double top or head-and-shoulders top, signaling an end to the up move.

Is discretionary position trading like that? No.

An actual position trade begins when the seas are calm and you are searching and waiting for the perfect entry, when all of the signals align and say buy. After buying, things grow tense, especially at the start. Colors that were vivid, even crisp just yesterday feel muted today, like storm clouds hiding the sun. The worrying begins.

“Will the stock continue moving higher? Will I miss the exit signal?” are questions asked, hoping to find the right answers at the right time.

Months later, after worry about the liftoff subsides, something in your mind wakes up and a voice speaks to you. “It's time to sell,” it says. If you are smart, you will listen to that voice because it is the voice of experience. It is right more often than not. So you sell, and the cycle begins again.

I can teach you when to buy because the entry signals are easy, but a millisecond after you put your money down things get hairy. After 30 years in the markets, I still have not figured out which trades will work and which ones will not.

This chapter dissects three winning ...