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Ask Tony
Wednesday, March 14 th, 2007
by Tony Golan
Chief Technical Analyst
StockProfit.com™
Robert asks again:
Tony,
Thanks Tony for your help. I actually bought JSDA Jones Soda at 19.88, I should have entered in a lower price and been more patient, I suppose, but I decided to put the order in below the high but did not go as low as I should have. I did buy 4000 shares and thought I'd put in a sell if it fell 8-10%. I would sometime use the 50 day moving average line on large volume but in this case it is too far below the price and I can't take that kind of a drop. Do you think it might go down and fill the gap and then resume but in any case I don't think I can take that chance and I feel I should go with my 8-10% drop sell point. What do you think?
Why is the MACD not a good indicator I learned that it works not only as a momentum indicator but also as an oscillator? I do realize no indicator is perfect and should be used with other indicators as well as sound fundamental research as well as the actual price and volume of the stock which is probably the most important thing to look at is that right, since I'm trying to learn?
Sincerely,
Robert
Tony answers:
Robert,
Please take the following as constructive criticism as I only mean to help you. The technical trade alert laid out a very specific trading plan, and specified that this was a daytrade only, for March 12th. JSDA didn't trade as high as 19.88 on the 12th, but it did on the 13th. This means you bought it after the technical reason for buying it was no longer valid. Also, you paid a full $2.50 above the entry price I specified. You paid 14.4% higher than the specific entry price, which would be a good gain on a swing trade, let alone a daytrade.
Further, I gather from what you wrote that you did not set a sell-stop and you are mulling where you might sell if the stock goes down. This tells me you have 100% of your money at risk now. I don't use the 50-day moving average, or any other moving average, for that matter, to set stops or for a selling rule, plus you tell me that you can't take such a big drop, which means that setting an intermediate-term stop at 11.75, like the chart suggests, would be even more disastrous for you.
To make a long story short, you bought a stock at the wrong time, at the wrong price, for the wrong duration and you have no idea where you're going to sell it.
When you find out you're wrong or that you've made a mistake, get out right away. The first loss is the best loss. Sell it right away. One thing you'll find out about trading is that people make mistakes, and it's ok to be wrong, but IT IS NOT OK TO STAY WRONG.
As far as you questions about MACD, when a stock moves from a low up to a high, you capture as much as you can from the move by buying as close to the low and selling as close to the high as possible. The later in the move you buy, the less money you make.
The problem with MACD, and every other indicator that's based on moving averages, is that by the time it gives you a buy signal, the stock has already backed up too much off the low, and if you're just a wee bit unlucky, the stock will go up just enough off the low to give you a MACD buy signal, get you to buy, then turn back down and go down below the most recent low, and continue making lower highs and lower lows while you're left there holding the bag. I have much too much bad experience with faulty technical analysis techniques like this one and advise you not to waste any more energy on MACD.
Like a stopped clock that shows the right time twice a day, MACD works sometimes, but that's hardly enough to base a trading strategy on.
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Tony Golan
Chief Technical Analyst
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