How I Stalk My Trades to Find Good Entries (Part 5)

08/13/2010 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Price continues higher, not only breaking out of the current range, but breaking out in style with an open gap higher! Price briefly consolidates, catching its breath, and then heads higher again in a near-vertical fashion.

chart

Click to Enlarge

Price finally tests the maximum excursion line, and you can see this line, drawn from the first two swing highs of this move higher, call the turning point as perfect as possible.

Does this tool always catch the exact top? No, it's not realistic to think any tool works 100% of the time. I don't place my limit exit orders (my profit orders) at this line. Instead, I use market structure or run trailing stops under prior swing lows to box in profits; or I may use Euclid's expansion series and measured moves or Median Line projections. But I keep this simple line on my charts whenever I can clearly see the pendulum pullbacks in a trend. I use it as a warning, much as the ancient Greeks had a servant standing behind them, whispering in their ear that “Fame is fleeting.” In this case, it is a warning that the closer price approaches to the maximum excursion line, the more likely price is running low on directional energy. My first floor broker—and still one of my closest friends—used to say to me, “Get in, get out, no one gets hurt” as a sort of mantra to me to frame my trade and get my money out before the rest of the crowd headed for the exits. This type of thinking has always served me well. I would rather have some money in my pocket and leave some money on the table for others to fight over then let slip away what was in my hands.

This is a simple line all of you can draw, and if you practice, it can improve your profit-taking decisions dramatically; literally from the first day you begin using it.

I wish you all good trading!

By Timothy Morge of MarketGeometry.com

Related Articles on STRATEGIES