Thursday, January 24, 2008

Some Charts to watch

Even though this blog focuses on achieving long-term dividend income, I think that sometimes it might be ok to satisfy my readers who have a shorter term objective at trading/investing than me. For a short-term trader it is imperative to look at charts in order to analyze the situation tick by tick, trade by trade. I myself used to focus on very short term trends ( 1-2 days) before I embraced the dividend growth strategy that I write about in this blog. If you look at the daily charts of SPY and DIA, two well-known exchange traded funds that follow the S&P 500 and Dow Joned 30 indices, you will notice the smaller than average trading range today. It looks as if the market is at crossroads right now - trying to decide whether to go up, continue moving down or just move sideways for a while.
If I were short-term trading this market, my orders for tomorrow for SPY would be:

Buy Stop X amount of shares @ 135.47 , stop loss @ 133.30 and trail your stop loss upward for every penny that the ETF moves in your direction.

Sell Short Stop X amount of shares @ 133.30 , stop loss @135.47 and and trail your stop loss downward for every penny that the ETF moves in your direction.


The orders for DIA would be:

Buy Stop X amount of shares @ 123.93 , stop loss @ 122.25and trail your stop loss upward for every penny that the ETF moves in your direction.
Sell Short Stop X amount of shares @ 122.25 , stop loss @ 123.93and and trail your stop loss downward for every penny that the ETF moves in your direction.


If SPY or DIA open tomorrow @ 9:30 AM ET above 135.47 and 123.93 respectively, then the long side of the trade should not be implemented, but the short side could still be done. If SPY and DIA open tomorrow morning below 133.30 and 122.25 you should not implement the short side of the trade, but the long could still be done.
Also, if one of the trades is triggered and then stopped out, you should take the second trade. The worst thing that could happen is a 2% loss.
You should try not to risk more than 1% of your capital on SPY or DIA ( assuming that you take only one of the trades). Therefore if your capital is 25,000 and you were trading DIA you shouldn't buy or sell short no more than 148 shares; if you decide to trade SPY you should trade no more than 115 shares. (115 shares X $2.17 risk per share =almost 250, which is exactly 1% of your account balance).
Anyways, enough about our short-term trader audience. Good luck tomorrow everyone!

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