Day Trading Basics, Part 3

05/19/00 02:53:18 PM

by Jayanthi Gopalakrishnan

If you are at the right place at the right time, you can take advantage of good trades.

Security: PRSF
Position: Buy

At approximately 1:00 pm EST on May 19, 2000, I noticed PRSF on my 'top percent gainers' window. Noticing that the volume was in excess of 3 million, I brough up the daily and intraday charts (Figure 1). On the daily chart I could see a substantial increase in trading volume and that the prices were above their moving average, in this case, the 8-day moving average (MA). The only factor that was against the trade was the NASDAQ 100 futures chart which was trending down at this time. However, the potential for making a profitable long trade seemed promising. I then pulled up the intraday chart and noticed that an upward trend was beginning at 1:00 pm. I inserted the moving average convergence/divergence (MACD) indicator, the one I use to determine when to enter and exit a trade, and waited for a pullback before entering my long trade. A slight pullback occured at 13:05 at which point the MACD had also started ascending. Given these two factors, I entered my long position at $44.50.

I then drew a trendline from the point where the trend started to the low during the pullback and extended it. I placed a mental stop 1/8 point below the trendline. I would exit my position when the following two conditions were met:

1. The MACD had peaked and started reversing.
2. Prices started approaching the trendline.

Figure 1. Top chart: The daily chart of PRSF shows a substantial increase in trading volume on May 19, 2000. Prices were also above their moving average. Both are positive signs for entering a long position. Lower Chart: The intraday chart showing entry and exit positions for this trade.

Graphic provided by: Cybercorp.

The MACD peaked at 13:18 pm and at 13:27 pm the prices started approaching the trendline. By this time he MACD had started reversing so I exited my position at $46.25 for a $1.75 point gain.

Jayanthi Gopalakrishnan

Title:	Editor
Company:	Technical Analysis of Stocks & Commodities
Address:	4757 California Ave SW
	Seattle, WA 98116
Website:	Traders.com
E-mail address:	Jayanthi@traders.com
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