Thursday, July 12, 2007

The Dow Explodes Higher Today!



I bought the diamonds (DIA) this morning based on my comments from yesterday which said if the dow gets to Monday's high that would be quite bullish and that we would see the dow breakout. Well that's exactly what happened today as the dow exploded higher up 284 points.

Keep in mind this is still the 2nd week of the month and if you've been a frequent reader of this blog you would know that the dow tends to rally in a big way during this week. I've been looking for this rally to take place which is why I posted about it last week and bought DIA on Monday.. Obviously my stop was too close to the market and I got stopped out on Tuesday pretty much near the low of that move down.

One of the reasons for the tight stop was due to the fact that we had small ranges last week because of the 4th of July holiday. My stops are based on the Average True Range(ATR) and last week's quiet trading and small ranges caused my ATR stop to be too close to the market when normal volatility returns. I should have taken last week's low volatility into consideration when calculating my stop.

I am long DIA at 136.70 (Monday's high) and I will exit tomorrow on Friday's close.

5 comments:

FTGGOG said...

Once again good call!

Kevin said...

Thanks

Themis said...

Great call. I have been in the QQQQ all week and took some bumps but still in. Great move today.

Adam said...

Can you explain how you calculate the ATR? Is this where you enter all your stops on new positions?

Thks

Kevin said...

True Range is the greatest of the following three values:

difference between the current high and low

difference between the previous closing price and the current high

difference between the previous closing price and the current low

This differs from range because true range takes into account overnight gaps.

For example you can have a stock that has a .50 range every day. So the average range would be .50. But what if the stocks gaps up or down over a dollar every single day and then goes on to do its .50 range. The average daily range is still .50 but the true range will be much larger. This is why I use true range and not range because I want to take into consideration overnight gaps.


Once you know what the true range is, you can take an average of that. You could average 5 days, 10 days...etc....and thats how you get the average true range...

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