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Greetings, Pro-fundity team members -
04-11-03

At the bottom of the Guidepost, a full listing of this weeks picks are shown, in addition to the Charts via the Pick-link.

As a benefit of membership, you have access to all Guideposts (including Archived GP's) and Picks. If you miss a week or two for whatever reason, you will be able to go into the Historical Guidepost link to catch up with both the weekly guidepost and the 30 picks made for the week.

Greetings, fellow Pro-fundity team members

1. We’ve discussed methods to set stop-loss levels when entering any trade. Smart money always attempts to control risk before counting the profits. Traders with experience pay first attention to potential loss, second attention to potential gain. “Potential” is the operative word in this scheme, realizing there are no “gimmees” as we construct setups with Reward/Risk ratios and safety-net stop-losses. The discussion on Reward/Risk ratio last week used a pick (EYE) made on 2/28/03. The average true range (ATR) provided a good stop-level which brought us to the following point in last weeks Guidepost.

   
   

   

   Fig. 1

2. In previous GP’s we’ve covered an exit strategy that sells when some target gain is reached. For example, in this instance had we used a 10% profit target, our exit would have occurred on 3/17 when price closed at $9.60, shown by the marker on the following chart.

   
   

   

   Fig. 2

3. A lot of money has been made using a fixed % profit sell-strategy. We outline this using PTS-1 (Advanced Tools). However, it is painful to leave so much money on the table as we see here. Another approach in the trading game suggests we beat out a lot of singles, yet strive for home-runs when possible. That is, work both ends of the trading equation. The few large gains will pay for all our small losses. To this end, a trailing-loss strategy was considered, as shown in the Advanced Tools, PTS-2. This raises the stop-loss trigger as price increases, never reducing the stop-level with a decreasing price. A third option (used as a secondary fall-back strategy, used with other primary exit strategies) guarantees we never give back more than some percent of our profit, ever! Consider the following as outlined by Don Worden (TC2000/TCNet).
   ”After you are once 10 percent ahead, don't ever give back more than 66 percent of your profit. After you are once 20 percent ahead, don't give back more than half your profit. After you are 50 percent ahead, don't give back more than a third of your profit. You can tinker with these percentages and mold them to your own objectives and temperament if you want to. But after you're once ten percent ahead, don't ever give back all your profit. Set a loss-cut and punt when you have to. –DW

4. I understand the spirit of what Worden says, but it is tough to get a handle on what to do in a trade. Our staff went to work on this system, creating PTS-3 (Advanced Tools). Now, we just fill in the blanks; the initial buy price, and the current closing price each day as shown in the table below. EYE, the chart in Fig. 1 and Fig. 2 above, is a good illustration. The buy on 2/28/03 was at $8.25. That is the buy price in the table. We begin the table on 3/13/03 when the price increased to $9.00, entering the new price as shown. The table automatically tells us the profit here is 9.1% and we will keep 20% of that profit with a stop at $8.40. Notice how these values change as the price increases.

   
   

   

   Fig. 3

5. This example shouts the Worden message, which has been called the closest thing to the investors Holy Grail. Look at how much of the profit we’ll keep using the stop-loss triggers shown. Notice also how the stop-loss never goes down, satisfying the spirit of the trailing loss strategy. And all we need do is enter the buy price once, then the closing price each day for direction. We showed the many rows in this table to illustrate the principle, however, all we need is one row, with buy price and current price, two entries, with PTS-3 calculating the three values in the shaded cells.

6. This system of “profit-protection” is but a framework which if properly used can fatten your wallet. Notice it still requires you to pull the trigger, it still requires you to make the judgment whether to sell EYE on 4/10/03 at $12.11 and pocket a 46.8% profit or to hang-on with the expectation of making more. Careful study of the chart patterns should help, but worst case, you’ll keep 65% of that 46.8% (30.4%) which still isn’t too bad. How will you know what to do? That’s called market wisdom which only comes with personal experience. Get as much of that trading experience as possible with Pro-fundity picks and paper-trading tools.
   04-11-03 Pick Selection:

   Main Picks:
   ADVP,APPX,GLYN,HTRN,LCI,POSS,PPDI,THC,UFPI,VTAL
   Breakouts:
   ANF,BG,BLTI,CYH,DDR,ENDP,ESI,SANG,THOR,USNA
   QuickPicks:
   ADM,BEAS,CBM,CEGE,CLB,CRAY,IVX,KGC,LFB,SIL

   For detail and followup on Pro-fundity Tradescape,
   find the link on "Advanced Trading Tools" on the home page.

   Be diligent
   Take Action!

   

   
   
   
   
   

   
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