Nobody's perfect. We all make mistakes in our trading. Identifying those mistakes and correcting them early in the game is important for traders. There is one mistake that eats at me. Actually I've put the trade behind me as it was very small as I had profiled the stock as a bearish trade with a very tight stop. The mistake was trying to short relative strength. I've said in the past that I learn and profit more from my mistakes than I do my successes. We can use my most recent mistake to make some good money going forward.
In a turning economic and stock market environment that I'm beginning to get the feeling we're in, relative strength is such a great indicator of future winning stocks. Relative strength gives hint that the stock is either gaining or losing favor with the bulk of market participants.
Identification of this mistake and perhaps the "result" of this mistake is important. We can use this going forward. Buy strength, don't try and short it!
Intel Chart - $0.50 and $1 box
The technicals in the p/f chart of Intel (NASDAQ:INTC) were "perfect" for a short near the $31. The stock had rallied up near a BIG level of resistance. A bearish trader could control their risk with a tight stop. The only hint of bullishness in the chart was the "high pole warning" that began in early November, when the stock managed to gain back more the 50% of a long column of O's.
When I first profiled a short in shares of Intel (NASDAQ:INTC) I did point out that a trader shouldn't be looking for a home run in the trade, just a pullback to the $27 level or so. I did point out that the relative strength chart did just turn bullish, but my error was "discounting" that relative strength. In essence, I think I did everything right, except I "discounted" the relative strength. That was my mistake and now I look to eliminate further mistakes of that type as the result was a small loss. Any loss should be avoided whenever possible is my view.
Intel vs. S&P 500 RS chart
Every so often, I need to stick my hand on the burner just to see if it is hot. While I pointed out the RS buy signal in shares of Intel (INTC) to serve as a point that traders should be looking for a home run in the profiled bearish trade, I should have just left this one alone entirely. If I had honored the RS buy signal, I would not have initiated a losing trade. The only good thing I did do was profile the trade with a tight stop just above the $31.59 level.
Are you thinking what I'm thinking? How can we begin to use some of the info in the above chart to identify some good LEAPS candidates? The current vertical count for Intel (INTC) is $64.50 and could continue to grow until we get a 3-box reversal (currently, that would be to the $31 level).
I'd start looking for some "big tech" stocks that are showing some similar attributes in their RS charts and p/f charts that have some "ludicrous" longer-term price objectives with the vertical counts.
Don't buy a full LEAPS position all at once. Buy some 1/4 and 1/2 positions, then add to them over time as the stock proves its worth or trades like you think it might. Look for any pullback in Intel (INTC) near the $30 level as a bullish entry point. Use those bar charts and retracement levels to help set up the trade.