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Traders Dilemma: Price Action vs. Momentum Oscillators |
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Written by Edward Chen
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Friday, 26 October 2007 |
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Factset Research Systems (FDS) is resting comfortably at a two days double bottom at the lower Bollinger Band and action price of $67. Here's the dilemma; price action says long, and the momentum oscillators such as the MACD and RSI is showing the stock on a clear downtrend. Here is how I think it should be traded.
Price action is most important because constant monitoring is part of the equation. Technical indicators should merely be guidelines when seeking confirmation. Thus, at current action price of $67+, price action play calls for an execution of a long position for FDS. Risk management should kick in at slightly below $67. Ideally, $65 would be a much better entrance for a long position for this stock. Here's why: 
The stock has risen 18 points from $56 to $74 in such a short period of time. Therefore it should at least retrace 50% (9 points) to approximately $65 before having a retracement of a retracement. Since, "loss of opportunity is always more preferred than loss of capital", it is wiser to wait until all signs are clear before taking a long position on this one. After all, trading is a marathon that requires a great deal of patience. Special thanks to fellow Marathon Trader nicknamed, The Billionaire, for bringing up FDS. |
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Last Updated ( Friday, 26 October 2007 )
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