Category: MarketClub Techniques, Tips & Talk

(RTTNews) - Wall Street experienced a volatile day of trading on Monday, as stocks bounced back from early losses led by strength within the tech sector ahead of quarterly earning results from Apple (AAPL) and Texas Instruments (TXN).

Stocks fell in early trading, looking to extend substantial losses posted last Friday, as investors remained nervous about the state of economy following mixed earning results.

However, as the trading day wore on, tech stocks began to lead the markets higher, as investors put themselves in favorable positions ahead of earning results from key tech companies after the closing bell.

After opening in negative territory, the major averages were able to climb into positive territory to finish the session, ending near their intraday highs.

The Dow rose 44.95 points, or 0.33 percent, to close at 13,566.97. The Nasdaq climbed 28.77 points, or 1.06 percent, to finish at 2,753.93. The S&P 500 ended at 1,506.33, an increase of 5.70 points, or 0.38 percent.

Dow Components

After posting a loss of more than 100 points in early trading on Monday, the Dow was able to pare its early losses and end the session with a modest gain, breaking a five-day losing streak. Leading the way within the average was pharmaceutical company Merck (MRK).

Monthly MRK Up Since : June 30th of 2006 @ $36.50
Weekly MRK Up Since: September 19th of 2007 @ $50.94

MC Members Up : 13.7% In a little over 1 Month

MRK is one of my favorite stocks... so I thought I would share it with members in light of today's INO.com's News Headlines.

To Read Remainder of this INO.com Headline Click Here

Last week we posed the question ...

Can an egg timer improve your trading?

For many of us the answer is NO.

So what can improve our trading? We know that the market can do only three things right?

It can go up, down or sideways.

That's it, end of story.

Getting the direction right is only part of the challenge you face as a trader. The other has to do with egg timers, or more specifically money management.

Managing you capital or the deployment of capital is one of the most important items on your trading list. Yet it somehow falls between the cracks for most traders.

In this weeks blog posting we are going to focus on STOPS!!!!!

Stops are enormously important part of a traders arsenal of trading tools. Some traders confirm that stops are the most important part of their trading armour.

So here are three ways to use stops to protect your capital and lock in profits from a trade. These three money management techniques can be used in stock, futures and forex trading. The important rule is that you do use a real stop in the marketplace. A friend of mine joked with me that that he had never seen a "mental stop" filled in the pits.

If the market is good your stop will not be hit. If the market is bad or changing direction then you'll want to be out of it anyway. That is why stops are so crucial to trading success.

Here are the three most commonly used types of stops. Which one do you use?

(1) Dollar stop.
(2) Percentage stop.
(3) Chart stop.

If you chose (1) you'd be correct, but, you would also be correct if you had chosen 2 or 3. All three are money management stops and are used to either lock in profits or protect capital.

1) A dollar stop, is when you set a predetermined dollar amount to a trade. Let's say you want to risk $500 on a grain trade or $750 on a stock trade. Once you get your fill back from your broker or electronically online you simply figure from your fill price where to put your stop.

Pros: Easy to implement and use.
Cons: Can place stops too close in a volatile market

2) Percentage stop, is a very simple way for you to place a stop on a position. Here's how it works. Let's say your trading account is 100,000 dollars and let's say you only want to risk 1% of your total portfolio on any one trade. You simply take a $1,000 risk which represents 1% of your over all portfolio. This can help enormously in taking BIG LOSSES. A 1% loss is easy to absorb. A 30% or 40% loss is an account killer and can and should be avoided at all cost.

Pros: Easy to implement and use.
Cons: Can place stops too close.

3) Chart stop, a chart stop is where you place a stop that is either above or below a crucial chart level. The good thing about a chart stop is that this level is often used by other traders. That can both a good thing and a bad thing, here's why. Using either stop 1 or 2 only you know where the stop is. With a chart point a great many traders/brokers know that is where your stop is. In an illiquid market this type of stop should not be used as many time brokers gun for the stops. In a highly liquid and active market this is a good stop to use.

Pros: Very easy to implement and use.
Cons: Can't be used in thinly traded markets.

So there you have it. Now you have all three ways to manage your money and protect your profits at the same time.

Some say stops are for wimps, or "if I put my stop in the market they will only stop me out". In big liquid markets nobody is big enough to make their presence felt for more that a day so no one is going to stop you out.

Use stops...they let them work for you.

Next wee: DIVERSIFICATION how to get and how to use it. Find out how diversification can lower your risk while increasing your returns.

See you next Friday.

Have a great weekend and trading week.

Adam Hewison

Believe me this Friday, Friday the 19th of October is going to be anything but quiet.

Why do I say that?

Well it could be that in the back of many traders minds is the fact that 20 years ago to the day ... October 19th, 1987 the stock market crashed 23% and sent shock waves through the economy and scared the heck out of millions of investors.

Have things really changed since that horrendous day back in '87?

Yes and no. Here's how things have changed in my opinion.

1. Exchange technology is much more powerful and sophisticated than it was back in '87. That's a good thing.

2. More traders are using the internet to track and trade the market. That's a good and bad thing. The exchange maybe able to handle the orders, but can individual brokerage company website handle a crisis/flood of orders. My guess is no.

3. Human nature has not changed since the beginning of time. We still make war, reproduce, make love, get angry and a host of other personality traits like fear and greed. This is a plus and a negative. for the market.

Not only did we see a crash in the market in 1987 we also witnessed the premiere of the movie "Wall Street." Who remembers Gordon Geckko the lead character of the movie and his now famous "Greed is good" speech? Watch Gordon Gekko's 1987 speech here:

In 1929 and again in 1987 economics and commonsense valuations went out the window as traders investors scrambled to exit the market at any price. The same can happen today despite all our high tech toys and trading tools.

It's all overtaken by the one constant that has remained in the market and throughout history, and that is crowd and human behaviour. I read this book many years ago and its now considered a classic on this subject of crowd behavior. It is titled "Extra Ordinary Popular Delusions and the Madness of Crowds". I strongly recommend that you read this book, as it puts the history of crowd behavior, and market bubbles in perspective.

This Friday, get your helmet and padding on because my guess is that it's going to be a bumpy ride.

Be prepared for any emergency.

Good luck,

Adam

Good Wednesday to you Traders!

Here's your second lesson in "The Secrets Of
Professional Floor Traders" mini email course.

Lesson 2 - "Finding a Friend in the Trend"
presented by Adam Hewison

================================================================

The trend is where the really big money is made in trading.
This lesson also covers false breakouts and how you can avoid
them. This should really help your trading.

Because this lesson contains two charts, it has been posted
here:

Trend Lesson

P.S. Next you are going to learn about how you can
measure and target "Technical Price Objectives"

P.P.S. Check out MY special video on Trading with the Trend:

Trading WITH the Trend

No doubt about it, a lot of traders are nervous this week.

Why?

It could be because this week is the 20th anniversary of BLACK MONDAY the crash of '87.

Many reading this email may be too young to remember the biggest single day drop in the history of the Dow Jones Industrial Average. On the 19th of October 1987 the Dow dropped a jaw dropping 23% in one day.

In case you are wondering the biggest single day crash in 1929 was 12.9% on October 28th 1929.

Can it happen again?

That's the question BARRONS posed on the front page of its weekly newspaper.

In the current poll we are conducting on our BLOG at (you can check it out, top right hand side) the vote is "Yes it can."

I have just completed a new video to show how you can protect yourself no matter what happens to the market.

You can watch it here. No registration required.

Be prepared this could be the most dangerous week of the year. This could be the week that makes or breaks your year.

Sincerely,

Adam Hewison
President, INO.com.

Time and BARRONS are trademarks of there respective companies