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Strong or weak Stock

G

Grey1

Well-known member
#1
Jun 11, 2002
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#1
Suppose you are a day trader and you have the following scenario ..


DOW is 50 points up ..
IBM is 5% UP
DELL is 5% down

Would you choose DELL LONG OR IBM LONG ?

( Remember we have always been told to back the strong stock in strong sector )
 
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O

oatman

Well-known member
#5
Feb 4, 2003
2,879
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#5
-IBM+DELL :cheesy:
 
D

Denny

Member
#6
Oct 22, 2003
52
1
18
York
#6
I would need more information before trading because if IBM was up 5% and Dell (of all companies) was down 5% then there must be some underlying reason for it.
People who chose Dell are working on the same principle of those thinking just because a share price has halved in value then it must be a good buy, because it is now so much cheaper. This rarely works and I would have thought the dotcom bubble would have taught us that the "catching a falling knife" principle can cause serious damage to your health.

Denny
 
neil

neil

Well-known member
#7
Nov 19, 2001
5,169
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#7
Another Sunny day in Cornwall

Denny
I am referring to "reversion to the mean" not buying something "because it's cheap."

:eek:
 
S

schoe

Active member
#8
May 22, 2003
343
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Somerset
#8
How about hedging the trade so you have an equal value of each stock. In theory by doing this you should be covered against market movement as if the market rises then IBM is strong so should rise faster than Dell and vice versa if the opposite happens. (Long IBM , Short DELL )
 
G

Grey1

Well-known member
#9
Jun 11, 2002
2,185
175
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#9
IBM and DELL are in the same sector..

We could hedge IBM against Dell but that is another story ..

My question was would you LONG DELL a weak stock or back IBM a strong stock..

Everybody tells you to jump on the trend ( trend is ur friend ) hence back the srong stock .. ( remember market is strong )

Now this is how I would trade this situation ...

I would certainly NOT trade LONG IBM because if market goes weak then the stronger stocks Fall much much faster.. Much risk attached to stronger stocks ...

I would wait for DOW to weaken a bit and would judge the relative strength of the DELL compare to the market .. Would dell resist the fall ?

if not then I would go long DELL.. ( My exact entry point would be based on VWAP and the support line using L2 )

Moral of this post..

1) Be careful in backing the strong stock on strong day ...
2) It is extremley difficult to identify the trend duration and you might just be jumping on the trend when it is fully exhausted..
3) Rate of fall of strong stocks are much higher than weaker stocks


I am now ready to have my teeth kicked by more experienced traders...
 
Trader333

Trader333

Moderator
#10
Jan 14, 2003
8,445
873
173
UK
#10
Grey1,

I am now ready to have my teeth kicked by more experienced traders...
Click to expand...
Highly unlikely in my view as who is going to claim to be in that position ?


Paul
 
barjon

barjon

Well-known member
#11
May 6, 2003
10,093
1,490
223
78
#11
Grey

you have posed an almost impossible question since there is
so much more info one would want.

however if i'd just arrived on the planet with no more info and
had to make a decision there and then without waiting to see
how the market was moving (or having seen how it had moved
that day up to then) then i'd long IBM and short Dell. my finger
would stay glued to the button since i'd be running a close stop
which i'd trail. hopefully the subsequent action would let me know
whether to reverse if the stops were hit.

given the scenario i'd be delighted to break even

good trading

jon
 
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