VDSI / HMSY

I continue to hold VDSI in my 401(k). The stock look solid still. It is stabilizing after its last run up.

Another stock that looks interesting is HMSY. The stock, much like VDSI has been going through a basing pattern after its last move up. Today the stock moved higher. I do not own HMSY.

How Many Stocks to Watch?

• Pick only 1 or 2 issues to watch. You are more likely to do better by following a few stocks well than following a bunch of stocks poorly.
• Use both physical stops and limit orders to control risk.
• Successful swing trading requires little knowledge about the companies underlying fundamentals.

VDSI

Like I said, I sold VDSI in the trading account and held it in the 401(k). I bought VDSI during wide price bar action, which is risky. I should have waited for the stock to "cool" before purchasing.

Expansion - Contraction

• Price bars tend to expand during rallies and sell offs.
• Then congestion sets in.
• Volume drops and price bars narrow. (I know - the Empty Zone!)
• Then, pressure builds up and the price starts moving again. (Positive feedback)

Sold VDSI in Trading Account - holding in LT Account

I sold VDSI in my Trading account today at $14.10. However, I am still holding the issue in my 401 (k) account. Technically, this issue is not something you want to be holding long. I thought the stock may find support around its 13 day MA but no such luck. I am guessing the stock will bounce around $13.50 to $14.75. I think the market is now waiting for the Jan. 31st conference call.

Trend/Range

• Positive feedback tends to surge in waves.
• Negative feedback allows the trader to enter a low risk position.
• Enter positions when the range nears primary S/R and watch for momentum in the next lower time frame to carry the trade to a profit.

Bollinger Bands

A good tool to measure central tendency of price.

• Enter fade positions when price hits the top or bottom band.
• Look for bands to tighten around dull markets.
• Consider shorting when the price pops more than 50% out of the top band and go long if this occurs on the bottom band.
• Odds favor price falling all the way to the bottom band when the central pivot breaks.

Moving Average Ribbons (MARs)

Expect choppy price action during phases when the averages criss-cross out of sequence. Price can bounce around like a pinball several times before breaking free when it gets caught between inverting averages.

MARs allow quick examination to locate classic retracement levels to use for entries on the next pullback.

3D Charting

I am most comfortable operating as a position trader. That being said, if I were to develop a 3D system, I would look at the 60-minute/daily/weekly charts.

Also:

• Logarithmic vs. Linear Charts: Use logarithmic for low price or volatile stocks. Use linear for higher-priced or slower moving stocks.
• Always look at the price bars first. Use the "lower pane" indicators to support what you see in the chart. Not the other way around.

Cross-Verification

Focus trade preparation on cross-verification to locate promising setups and measure risk:reward. Basically from what I can gather, is that cross-verification is an area on a chart where there are multiple trade signals at a certain price. This price is low risk entry point. They key is to uncover this area and execute a trade.

• Look for price close to substantial support to identify low-risk long trades.
• Look for price close to substantial resistance to find low-risk short sales.
• Measure profit targets (PT) and failure targets (FT).

Support & Resistance

• Look for price to fail the first test of any significant high or low horizontal level. But expect a successful violation on the next try.
• Rising or falling moving averages routinely mark significant boundaries.
• Trend line and channel breaks signal the end of a prior trend and the beginning of a sideways phase.
• Use central tendency to uncover ripe trading conditions but then shift to other indicators to identify low-risk entry levels and proper timing.
• Try using Fibonacci to see how far a rally or decline will likely pull back before reversing.
• Corrections routinely retrace at least 1/3 to 1/2 before support begins a new rally phase. Many trends pull back 2/3 before changing direction.
• Round numbers affect trends. 10,20,25,30,35,100,10000.

Entry

From Alan Farley

• Classic swing traders work best during negative feedback.
• Enter positions at low risk and exit them at high risk.
• These areas often mean buying support and selling resistance.

frozen

I am really curious about what happened on Friday concerning VDSI's drop in price. I could not find any news to base the drop on. Message boards were useless, as usual. My initial thought was that it will come back in the afternoon. Then I thought, I will sell now and buy back cheaper. However, anytime I tried doing that in the past the stock would bounce up after I sold. So, with no real evidence about anything, I am holding on. I know this does not sound like a good game plan but I hate churning a portfolio. I am watching it closely though.

oh nelly

What happened to VDSI this AM? What was it? Some type of gunning exercise or something? I am sitting tight. I don't know if that is the right thing to do but I want to see what happens in the afternoon.

You can't rest in any market

Well, today more news comes out that shakes the market. One day everything is good. The next day, it is time worry about something else. Get used to it if you plan to stay in this business.

Anyway, I was looking at a few interesting stocks tonight. I found: ROCM, JSDA, CTEC.

Otherwise, I have not made any new buys or sells. I continue holding VDSI.

Trend Relativity

• The most profitable positions will align to support-resistance on the chart above the trade and display low-risk entry points on the chart below.
• The perfect set-up rarely exists.
• Many traders make the mistake of seeing their trade in one time frame and executing in another.
• Decide how many bars must pass before a trade will be abandoned regardless of gain or loss.

Time

I remember when I read Alex Elder's books and he introduced me to the Triple-Screen system. Well, Alan Farley explains the same idea.

• First, choose a primary screen that reflects the holding period and matching strategy.
• Second, study the chart one time frame above your primary screen. This chart should identify support/resistance and other landscape features.
• Third, shift down one time frame and look for a low risk entry point.

Some traders, sit on nonperforming positions for weeks and tie up important capital while other opportunities pass them by.

Here is an interesting concept about time. Use both price and time triggers for stop loss management. Time should activate exits on nonperforming trades even when price stops have not been hit.

Alan Farley - Swing vs. Momentum

• Price seeks equilibrium.
• Swing trades that execute right near support or resistance offer good opportunities. At its core, the narrow swing tactic buys at support and sells at resistance through congested markets. It fades the short-term direction as it predicts that a barrier (resistance/support) will hold and reverse price.

Alan Farley - Trend Range Axis

Alan talks about trend range axis. Also, I think Alan has some good things to say but his language is very difficult to understand sometimes. He tries to make ideas sound more difficult than need be. Once you get used to the way he expresses himself, the information he provides is good.

Stocks are either trending or trading within a range. Alan refers to this as positive (trending) or negative feedback (range bound).

Basically, you have these cycles where there are periods of quiet low volume trading where price absorbs volatility. Once that has happened, another leg of activity erupts.

Alan says, when breakouts erupt, follow the instincts of the momentum player. Buy high and sell higher. However, when volume drops and price bars narrow, use price boundaries (ranges) to fade the short-term direction.

Some Ideas

During my evening scan, I notice a couple interesting ideas. I am looking into ANGN,SIMO, WIT and PSO.

I was surprised to see VDSI move up as much as it did. I actually do not prefer frenzied action on the tape. Too risky and too much emotion. As long as the institutions are Bullish, we should see an upward bias. Try not to get shaken out by the volatility if you can help it.