Many traders assume that there are one of two views they should apply to the market:
it is either going up or going down. Thus some traders expect to be in the market
all the time, trading their favorite indicators when they make each turn up or down.
I submit that there are times where a stock you bought should be sold but not yet
shorted to bet on a continuing dip. I call this a "long exit" though it is not yet a
new "short entry." Similarly, if you are bearish on a stock, you may see an
indicator upturn that suggests you should have a short exit, but might not want to go
to a bullish "long entry" just yet.
Here's an example, using the Moving Average Convergence Divergence (MACD) indicator.
The traditional MACD settings track the distance between a 12-period exponential
moving average (EMA) and a slower 26-period EMA. This line shows the momentum of the
market, while a 9-period average of this line serves to provide crossovers up and
down. But a key filter I watch on the MACD is the "zero line", which tends to define
the stock's overall trend. Above the zero line is a bullish trend generally, while
the broader trend is bearish under the zero line. As a result, when I see a bearish
crossover but MACD is still above zero, this suggests that we don't want to be long
anymore but it is too early to go short. You would want to take new short signals
when the MACD is under the zero line and then showing a bearish cross under its 9-day
average. Similarly, when we are under the zero line and we see a bullish cross, I
look for a short exit but not a long entry until we see MACD back over zero and then
get the bullish crossover.
For instance, take a look at the daily chart of General Dynamics (symbol:GD). The
zero line is the horizontal line that serves as our filter to determine the broader
trend. As you can see, by not taking new long entries when MACD is crossing over its
9-day average but still under zero, we avoid fake-out sell signals within a broad
bearish trend. We do get the short exit, but then shorts can be re-entered on the
next bearish crossover while below this zero line. In contrast, the readings above
the zero line should only allow new long entry on a positive cross higher, while a
cross lower above the zero line signals a long exit but not a new bearish entry.
GENERAL DYNAMICS WITH MACD - DAILY
A common theme for me in determining how to enter and how to exit is to make entry
parameters fairly strict, while making exit parameters relatively fast when they
occur. What I seek to do is address the old saying "Entry is easy - exit is hard."
Since entry is the only element you can truly control (once you are in the trade, the
market will do what it wants to do), I typically require two consecutive closes above
a moving average or Acceleration Band to get into the bullish trade, while one close
back under these trendlines will signal my exit. This makes the trader exit first,
and ask questions later, but it is better than getting caught up in the guessing game
day after day, while the stock or option continues to move against you.
Other differences between entry and exit are that the indicators that define when to
get in and when to get out should not be assumed to be the same. In addition, even
if the same indicator is used, the proper parameters for the indicator may be
different between entry and exit. Many traders assume that they use the standard 12
and 26 period lengths for MACD on the entry side, that they should use 12/26 on the
exit too. This is not necessarily true, and smart traders will test ideal
combinations on both entry and exit. Some MACD traders may use 12/26 on the entry,
but use 19/39 parameters on the exit, as MACD creator Gerald Appel has explored.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1380 1420
S&P 500 850 880
Dow Industrials 8100 8300
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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