Tuesday, August 7, 2012

Tuesday Evening

Relax :)

Tuesday afternoon

The Entry

To me, entering a trade is the scariest part.  After that, I’m in Ms. Market’s hands.  But we have to enter to win, so how to go about it ?

There are many ways to enter, but “oh hell, just buy it because it’s going up” is not usually one of the better ones (ask me how I know this, lol).  As Helene Meisler often says, if it looks great, it’s too late.

I think it boils down to two primary types of entries :

1)  Passive.  In this mode, you’re bidding at support or offering at resistance.  Hopefully, price will fill you and then reverse.   (“hope” is not my favorite word in trading)

2)  Active.  Here, you’re waiting for price to move a bit in the desired direction and then entering with a market or stop order.

Maybe a better description would be “without confirmation” and “with confirmation”.  The confirmation might be taking out a prior bar’s high or low, or breaking out of some consolidation.  

Lately, I’ve become more fond of the active or “with confirmation” approach.  With this method, the market at least tried to move in my direction.  Too many times I have gotten filled on a low bid or high offer, only to see the market keep running …. right over me.

So, I think the active method has two main advantages :
1)  I won’t miss the trade because price never hit my limit.  If it moves in my direction, I get triggered in.
2)  If it keeps going in the “wrong” direction, I won’t even be in the trade.  It can run over somebody else, not me.

Tuesday Morning

Gator's Chart of the Day: BWA
Borg Warner Inc reported earnings on July 26th before the market opened.  (7/26 is just left of the green arrow.)  The report was nothing special as they missed by a penny on the bottom and cut guidance.  It didn't seem to matter as the stock went up anyway.  After battling with the 50 day simple moving average the stock pulled back a little and made a higher low.  Now it has moved above the 50 day (or the 50 day has moved under the price) and it looks ready to work higher if the market will cooperate.

The Trade
I am not looking for the market to move higher in the next couple of days but that doesn't mean BWA can't.  I believe a position can be started here if you take a small bite ... maybe a 1/4th position with a stop below the 50 day (around 65.20.)  If you have the patience you may consider a lower stop ... but I would not set it much below 62.50 as that was the higher low. 

I'm looking for a test of the 200 day as a minimum target and 77 looks reasonable.  With that in mind I would add on a move above 69 and would want a full position if/when it breaks 70.