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Greetings, Pro-fundity team members -
04-18-03

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. Discussing the principle of a Reward/Risk ratio, we have followed the fortunes of EYE (a pick made on 2/28/03) the past few weeks. The Reward/Risk ratio is of utmost importance. Let’s move into a series of exit strategies using this same company price chart. We outlined three different approaches last week, tightly connected to the R/R ratio which needs estimates for both profit and loss. This ticker has cooperated, letting us study different exit strategies with its price increase. These included:
   
   • "x" % Target Sell (PTS-1)
   • "x" % Trailing Stop (PTS-2)
   • "x" % Profit Give-back (PTS-3) (This option is not really a "strategy," rather a secondary fall-back approach that can be superimposed over virtually any primary strategy)

2. Any one of these options will bring profit, some working better than others with different price patterns. The reason we are laboring over this issue again and again lies with the fact that there is no perfect trading system or approach! It does not exist. If there were such a system, there would be no random factors or influences (like news, weather, guru opinion, public emotion, etc.). Secondly, someone would have found it and now own most of the free world. This means we cannot trade the market mechanically. During all the years we’ve traded “rolling” stocks, it has never been mechanical, simply “Buy at support, Sell at resistance.” Rather, judgments are required at every turn. Not even computers can remove us from the equation. That’s either good news or bad news, depending upon our point of view. You see, it depends upon us!

3. We know that every trade will not move in our direction. Suppose our stop-loss is set 10% below the buy price and we are looking for a 10% target gain. If 100% of our trades go in our favor, we are 10% ahead over time. If only 50% of our trades work, we lose as much as we gain, with a net zip! Therefore, the good-pick percentage determines our net return. How many of our picks are successful? Some professional traders say 50% is a good hit rate. How do they make money with only a 50% hit rate? They do not sell with a fixed % target. When we enter a position, we are merely trying for a foothold, a short trip. If the trade (trip) goes in our favor and the stock remains strong, we may sign-on for a journey. This is an important mind-set, allowing that we can change our mind at any time. You see the journeys pay for the small losses that surely occur. They don’t happen often, but they are critical to our success rate, to our profitable returns. If we just breakeven on the little trips, the big money awaits at the end of the journey.

4. The following table is the Main Pick performance WatchList for Friday 2/28/03. This includes the ticker EYE we’ve been following the past few weeks. Notice the two 50+ % returns at the top. What if we had sold these two when they reached 10%? Or 15 or 20%? We would forsake the journey for a mess of pottage. What’s important here is that we leave the window open for the possible journey. No journey unless we do. That is what options 2 and 3 in Paragraph 1 above are all about.

   
   

   

   Fig. 1 (4/17/03)

5. Lets pickup with our analysis of EYE last week as we look for the most profitable exit. The price pattern has the marker on the date of the pick, 2/28/03. Since last week the price has increased from $11.75 to $12.40, another 5%. Comes judgment time: Do we sell now and capture the 50% return, or hold for further gains? To help the decision, we look at indicators for potential moves, making our guesses more educated…

   
   

   

   Fig. 2

6. Indicators still very strong, volume above average the last four days, stochastics above 80. The indicators are following the price, no obvious divergences. Volume is a plus, stochastics in a trend is less reliable. Always look at the price pattern in different time frames, study the weekly price pattern below for further hints.

   
   

   

   Fig. 3

7. From this vantage point we can see the “double-bottom” pattern. This is a good pattern for increased price action, if the breakout above the mid-point line of the W is confirmed by increased volume. Confirmed!

8. Next week we will examine the other 50% plus ticker SSYS, for clues and lessons-learned. Additionally, we will add another exit option for “x”-bagger price patterns. This is very important to our “trading learning curve.” It’s been said that it is more difficult to sell than to buy. That is absolutely true and why we’ll spend a lot of time on this. This is true is because it requires a decision on our part. Not a decision we can put off. As we examine potential picks we are free to wait for the perfect price pattern, moving from chart to chart. If we don’t find what we like, we can take a hike. But, once we are long in a stock, it’s a different matter. We can’t escape the decision process, and time is of the essence. It is no longer our game, going by someone else’s rules.
   04-17-03 Pick Selection:

   Main Picks:
   AAUK,CCL,EMBT,FWRD,LSCC,NSM,PCL,TSG,USB,WAB
   Breakouts:
   ABFS,ALV,ARDI,ASKJ,CNQR,CX,KNGT,TSS,USI,VTR
   QuickPicks:
   AEM,AGI,CIT,DAL,ENTG,FBR,FTI,JBL,KGC,WMB

   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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