How to Survive a Pullback

by Darrin Donnelly on April 6, 2011

Click on chart to enlarge.

Click on chart to enlarge.

One of the hardest things for a trend trader to do is hold onto a winning position during an aggressive pullback.

We experience this situation often.  A stock we buy jumps out of its base and races to big gains.  But just when we start counting up all the money we’ve made and smiling about what brilliant traders we are, our big winner reverses on us. 

First it’s just a point or two in one session.  But then, we see the same thing happen on Day 2, then on Day 3, again on Day 4. 

Each day, we see all that profit we had “earned” just days before shrink down to the level that we’re nearing a break-even point or perhaps even LOSING money on this once brilliant trade. [click to continue…]

Darvas Stocks Surging Higher

by Darrin Donnelly on March 30, 2011

Click on chart to enlarge.

Click on chart to enlarge.

While still technically trading within the “neutral zone” range of 2800 and 2725, the NASDAQ is showing clear signs of strength as it has recorded three Accumulation Days (moving up in price on increased volume) over the past six sessions. 

Also adding to the optimism is the fact that several Darvas stocks are acting very strong; either extending gains or breaking out of sound bases on increased volume. 

When in doubt about the health of the market, always trust the behavior of your leading stocks over the action of the indexes.

Still, there is reason to remain cautious.  [click to continue…]

The First Rule of Successful Trading

by Darrin Donnelly on March 29, 2011

Rule No. 1 for Traders

Rule No. 1 for Traders

We’ve all heard the often-repeated sports maxim, “The best offense is a great defense.”

It’s true in sports and it’s true in trading.  But cute maxims often lose their meaning and purpose if we don’t examine them more closely and make sure we understand the principles they explain.

As traders, what are we really saying when we repeat this advice?  [click to continue…]

To Sell or Not to Sell Prior to Earnings

by Darrin Donnelly on March 28, 2011

Traders tend to be avid philosophers.

We love to ask lots of “why” questions.

Why does one stock go up while another with similar characteristics goes down?

Why do two completely different strategies, such as technically-based trend trading and fundamentally-based value investing, BOTH yield massive fortunes in the long run?

Why do many people go broke trying to implement the exact same strategies used to make millionaires and billionaires out of others?

One such “why” question I’ve been reevaluating lately is why we choose to sell or not sell a stock prior to the company’s earnings announcement. [click to continue…]

Neutral-Trend Market Offers Us Good Opportunities

by Darrin Donnelly on March 27, 2011

Click on chart to enlarge.

Click on chart to enlarge.

The NASDAQ rose 3.76% last week and retook the 50-day moving average line.  This price action was enough to put us in a neutral market trend. 

However, volume was not at all impressive during last week’s rally.  In fact, volume was below-average all week, which tells us the buyers lack conviction and the sellers are still in control. 

In most cases, rising sharply on lower volume is a sign that a sell-off is on the way.

Still, not ALL low-volume rises lead to downturns.  There are times when such price-volume action is actually the behavior of a new uptrend slowly waking up.  Thus, we are now in a neutral trend environment. [click to continue…]

Great Advice from Nicolas Darvas

by Darrin Donnelly on March 24, 2011

Nicolas DarvasNicolas Darvas wrote the following passage in 1977:

Bitter experience taught me that I could not possibly win in the market if I allowed emotion to influence my decisions.  So one of the first steps I took was to keep well away from the marketplace and insulate myself from its ever-changing moods.

While I continue to trade on Wall Street, I keep the market and its emotional atmosphere at arm’s length. [click to continue…]