As the trade moves in the right direction, I adjust my risk accordingly.

Trade Art Risk Adjustment Oil on canvas

Buy into buying, don’t buy into selling.
-Trader Proverb
I buy and I sell things, but mostly I am paid to wait.
-Vincent M. Vega
The waiting is the hardest part.
-Tom Petty

In my prior post, I laid out the bullish case for APWR (A-Power Energy Generation Systems, Ltd). Two trading days have passed and I have not bought the stock because there has not been any buying. I will buy into the buying if the stock breaks out of it’s regression channel. Being patient and waiting to see demand will keep you out of many losing trades.

Stay tuned.

APWR Setup Oil on canvas

VMW is breaking to a new high today. I am long.

VMW Breakout Oil on canvas

Reader query: “Any thoughts on APWR?”

Upon pulling the chart, I initially see that the stock is in a downtrend, so it is bearish. I am biased to the long side at the moment, so my first inclination is to pass–not go long or short it.

APWR

However, though the trend in APWR is down, the trend can change—it can turn up. Every new trend starts with a countertrend. The stock is going down now (the trend is down), but it won’t go down in a straight line. There will be countertrend moves within it’s overall downtrend. At some point, one of those countertrend moves will be a bottom, and the beginning of the new trend–an uptrend.

It is possible that the formation of APWR fits this countertrend criteria. So before I buy, I will wait for buying. In other words, I need to see some demand off of this bottom. I need to see buying behavior before I “buy into” the behavior. One of the greatest rules of trading is a converse conversation:

“Don’t buy into selling; buy into buying. Don’t sell into buying; sell into selling.”

Write that down.

Studying the chart in zoom, I decide I will wait for the price to move outside of the regression channel, and when it does, I will buy. I’ll always use a stop, so I will set my initial stop under the bottom pivot (red line). Stops have saved my life several times. I am sure they will again.

APWR Countertrend Oil on canvas

Every new trend starts with a countertrend. The end of one thing is the beginning of another.

And the beat goes on.

The other day at the office, I was discussing my bullish view of the market with one of my most trusted advisors, X.

“So you’re bullish eh?,” he asked, “Why?”

“Because the market is going up.” I said. “So’ I’ll remain bullish until general conditions change.”

“Why do you think the market is so strong?” he inquired.

“Consumer spending is extremely strong, which drives demand for a whole host of gadgets.” I explained.

“So consumer spending is driving profit growth,” he countered. “This makes me wonder where consumers are finding the cash to spend, given unemployment is so high.”

“It’s the oldest trick in the book.” I offered. “You know, the infamous tapping on a person’s left shoulder when you’re standing on their right. Consumer spending is extremely strong, which is driving profit growth–tap on the left shoulder–but the money consumers are spending is the money with which they are not paying their mortgages. The banks are standing on the right.”

“So when will you turn bearish on stocks?”

“When the market is going down.” I said. “For now I’ll trade to the long side. I’ll own names that resemble the chart of Sirius Satellite Radio (SIRI)–which I also own.”

And then I was gone.

SIRI Oil on canvas