We’ve made the decision. Now we’ve got to take action. Here’s how we do it in biotech (IBB). (M..
Discussed in this article: iShares Trust Nasdaq Biotech Index Fund- Shs Nasdaq Biotechnology Index Fund ( $IBB )
It’s a big day for biotech; here’s the thing, we’re looking at the weekly chart here of the IBB ( NASDAQ:IBB ). I look at this and I’m thinking, “Okay I see the pull back, I get that, but man I’m just not exactly sure whether to pull the trigger because it’s a long ways above this 20-period moving average, which is the middle Bollinger Band, it’s a long ways above that, where it tagged it here so this kind of freaking me out a little bit, I don’t think it’s that great; plus the 200-day moving average or 40-week moving average, it’s up above that, but then, and I’m just kind of arguing both sides, but then what, it hasn’t really hit that in quite a while anyway, so maybe that’s not a big deal, but I really like the uptrend so what am I to do? What the heck am I going to do with this thing?”
Well, here’s how we do this, we make a decision, yes, we want to be long biotech, I like this chart, I want to be long IBB ( NASDAQ:IBB ), that’s my decision. Now, how am I going to take action on this? Think of it this way, you decide you love somebody, that’s great, good for you, congratulations, hopefully they love you back. But how are you going to show them, because if you don’t do it right it’s not going to have the desired effect, so you make a decision and now you plan your action; like flowers, or not, and am I being hard to get, or whatever? In trading you just go to the daily chart, where are the buy points, where are the points that you want to be buying this stock? Well in the past, you’re not going to get perfect trend lines here, but you can see basically you buy the zigzags here; now if we look ahead, and can we connect this, and this, and this, and now right there, what do we get?
We’re actually getting a pretty solid trend line; buying on tags of this trendline, it’s not a trend line here, it’s just the low point, it’s not a trendline here, that’s just a connection between two points from the shortest distance, by the third one, now it’s a trendline; you’ve got a line drawn between the shortest distance between two points, you extend that out, finally the third point, I’m giving your pearls here on how to look at trend lines, the third pullback and bounce clarifies and confirms that this is an uptrend and so now, lo and behold, what happens? This is where the stock is right now, so you buy it, and you’re going to make a bunch of money when this stock, or here the ETF, goes up to there, right? Wrong, you hope you do, but what you’re doing is you’re buying at a low risk buy point, you insert a fairly tight stop below the level where you think the stock is bouncing, that way you are stopped out, with a loss, if this pattern breaks down; if the stock in fact doesn’t bounce, you’re stopped out for a loss, but you know what? You took your shot and that’s all you can do.
So what I’m saying is, right now with the 50-day moving average at 251.00, you keep a stop at about 249.00 or 248.00 on a new trade, and then you’re going to get back to this time frame and you’re going to wind up being able to hold this trade. So that’s the difference between decision and action, you’ve got to be consistent in all those things or you better have a tight stop.