Quote Originally Posted by MTman View Post
Mike,
Thank you for your reply and advice - very helpful. Some additional questions on this topic:
-In general, what are your profit targets for smaller positions such as a 3 weeks tight or a 50 day MA rebound when these are your initial entry points in a position?
-When the market trend goes 'under pressure' will you sell your laggards automatically even if they have not reached 20-25% profit?
-What stocks will you try and hold through an intermediate correction assuming they have not reached the 20-25% profit target?
-How do you determine how aggressive to be in buying and selling?

Thank you!
Mark
Mark,
I don't have different profit targets from buy points that begin with at breakout such at the normal 7-week bases, flat bases, 3-weeks tight, and short stroke. Pocket pivots, shakeout plus $3, and 50-day buys can be different. If I buy at a 50-day bounce and the stock moves up and then breaks out of a standard pattern, I start measuring the 20-25% profit target at the breakout. Thus if the 50-day bounce was 5% below the breakout the profit target becomes 25-30% from my buy point. Pocket pivot buys are the same. Sometimes a pocket pivot coincides with a normal breakout. All of my pocket pivot buys are above the 50-day and some are above the 10-day. A shakeout plus $3 is an early buy in a double bottom pattern or some other kind of shakeout below a prior low. The buy point is $3 above the first low for stocks trading from $30 to $60 and proportionately for other priced stocks.

I much prefer to buy a pocket pivot or 50-day bounce than a breakout. The profit targets are greater and there is a well-defined exit point at the 50-day or 10-day such that the risk becomes a few percent vs. 7-8% loss. 50-day bounces and pocket pivots are essentially early buy points in a base. You must analyze the base and see what is forming and whether the base is proper. If it is and has constructive price and volume action, as long as the price and volume action continues along your assumed lines, you can stay in the position. Lets look at a recent example. LEN was a leading issue but seemed to have topped out last May. It now appears to have possibly formed a bottom in what may be a cup or cup and handle formation. That possible bottom was in August. LEN subsequently retested that bottom successfully and regained the 50-day moving average on 11/26 on pocket pivot volume. The pocket pivot volume signature as defined by Chris Kacher means it made the highest up volume over the last ten trading days than any down volume in the period. The buy point becomes the 50-day moving average. As long as LEN remains above the 50-day and continues building my assumed pattern I can stay with the position. Note that this means that you need to predetermine when you make the purchase that you can hold it if it retests the 50-day, so don't chase more than say 5% above the proper place. A 5% chase would be large for me. If the 50-day is declining this can present problems, stay with flat or rising 50 day lines.

Early in a new cyclical bull market advance is when to be aggressive. These can be volatile times so it can be the toughest investing of your life. 2009 was like that. 2003 was more normal. 2009 really required a different tool set to do well (junk off the bottom) at the start.

Late in a bull market cycle can be a time to be cautious but here is where experience comes in. Many bull markets end up in a blow off stage presenting an easy investing period that can be short lived. I was on 200% margin going into the October 2007 top assuming that we were probably in a topping stage. When October 31 came with its large move up into new high ground after a rather good move up after 4 1/2 years of a bull market run I assumed that was the end and began selling into the blow off.

The current environment is giving me a different set of challenges. We have been in what appears a continuous rally since November of last year. All of the usual tools and techniques advising caution or raising cash along the way have been superseded by QE. No set of tools work in all environments. Again this is where experience comes in. My experience level has not been as high as I wished. So along the way this is what happened to me: I took profits at the normal profit levels in my positions only to find that I can find few replacement positions in this weird market. Usually pullbacks produce proper bases, the abbreviated pull backs have either left positions extended or broken. So I am currently underinvested.