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Minimize Risk By Trading Within A Range

05/09/00 12:24:42 PM
by Jason K. Hutson

Looking at 60-minute data for Apple Computer, Inc. (AAPL) shows that the past month and a half have been a volatile period. Exhaustive selling during the middle of April created short-term support at $109 per share. By looking at these past support areas, a trader can pick entry points into the market while minimizing risk.

Security:   AAPL
Position:   Buy

To make better trading decisions, a trader must keep tabs on the market as a whole. To get a feel for the market's direction a trader needs to check certain indices to confirm long-term trends. Several common indices used for market analysis are the Dow Jones Industrial Average, Dow Jones Transports Average, Dow Jones Utilities Average, Nasdaq, and Standard & Poors 500. Analysis of the 50-day moving averages for each of the above indices will give you an idea of the general direction of the trend. A positive-sloping moving average for any of the indices gives you an assurance that the previous trends will continue.

After determining that the overall market is trending upwards, a trader must select their securities, and identify possible entry and exit points before any trade is placed. An example of how to use this strategy can be seen in the chart of Apple Computer, Inc. (AAPL). AAPL is currently in a trading range with short-term support at $109 and resistance at around $126.

AAPL as of 5/8/00 60 Min Bar Charts
Graphic provided by: CQG.
You have two options under this scenario:

1. LONG. Place a buy order slightly above the first suport level at $110. Place a stop half a point below this level. Exit your position when prices are approaching the resistance line.

2. SHORT. Enter short positions at the resistance level. Place a stop half a point above this level. Cover your short positions as prices approach the support level.

Jason K. Hutson Staff Writer. Enjoys trendlines, support and resistance, moving averages, RSI, MACD, ADX, Bollinger bands, parabolic SAR, chart formations, and volume analysis.

Title: Industrial Engineer
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