Thursday, February 02, 2006

Measuring a Price Target

Just a quick lesson here.

It's often true that figuring when to take profits on a stock is far harder than knowing when to get into a stock. The balance between greed and fear is always difficult.

One objective measurement for one particular kind of pattern - the head & shoulders - is to measure the delta between the top of the head and the neckline, and subtract this figure from the price at the neckline. Look at this recent example of stock DST:

It's not a huge pattern, but the target was still valid. The price sneaked below the target a little, but better to take the profits than wait for the stock to bounce back up (which it is doing right now).

1 comment:

Anonymous said...

Dear Trader Tim:

your blogs are appreciated, very insightful! I think 'super-bull' is all washed up. He seems to think that just because someone holds bearish views they are anti-american. That's not very open minded! I think the US has a lot going for it, but the upcoming period will be one of rationalization, and as the largest economy on earth, it's obvious that the US will bear (pardon the pun) the brunt of the adjustment. The rest of the world has a lot of catching up to do and it will stagnate until this process is over. Life is a numbers game and the world has too many US dollars held within a very narrow section of the population. Just like Henry Ford said, what is point of producing these cars if your workers can't afford them? Apply that principle to Asia and you begin to appreciate the enormous imbalance in the world today. Let's just hope that the road to re-adjustment is a peaceful one!