P1: PIC/PIC c07
August 12, 2008
Printer: Yet to come
Exit Strategies and Trade Management
two units and take the first unit off at a minor correction target. I’m sure you will find your net results over time will be much greater with this logical, two-unit strategy for all trades. The stop on the second unit was kept at breakeven until the S&P had completed two sections for a potential ABC correction. Only then was it advanced to the potential Wave-B low. The stop was then trailed very close to the market at the 60m 1BL once the 60m momentum was OB and price had reached the probable Wave-C target zone. Each trade management decision was a logical choice based on the market position as new bars were added. I wish there was a fixed formula for price targets or momentum position for an exit strategy so we didn’t have to think about how to manage a trade as it progresses. I know some trading educators claim they have discovered the secret. They haven’t. Trading is like every other business. You have to make decisions based on the available information. Every market, every day provides new information. It is your job to understand and apply that information to logical decisions. A market can do just about anything. Momentum reversals aren’t always made at the OB or OS zones. Price targets are not always reached. Wide range reversal bars can result in a significant price movement before a momentum reversal signal is made. Highs and lows are sometimes made outside of any typical time factors. Anything can happen but you must make a decision based on the probable position with the information you have as of the last bar on any chart.
Stock Setup Figure 7.13 is the daily data for OIH, the oil services ETF. The February 20 low was in an ideal position to complete an ABC correction.
Summary Position of OIH as of February 21 Momentum: Weekly momentum is bullish. Daily momentum made a bullish reversal February 21. Pattern: Probable ABC low, which implies a continuation of the bull trend to above the December high. Price: February 20 low made at the extreme probable target for a Wave-C low including the 61.8% retracement and 162% APP of Wave-A. Time: February 13–21 is the daily Time Band for low. February 20 is in the 38% to 62% time retracement zone. Trade Strategy: Long on the Tr-1BH following the February 21 daily momentum bullish reversal. Strategy for the ST unit is a Wave-C target at 145.59–146.70, which includes the 100% APP and 78.6% retracement. The general objective for the long-term unit is a continuation of the bull trend to above the December high. Speciﬁc objectives will be made if the trend progresses.