Wednesday, August 1, 2012

Trading PCYC

I am coming to understand that Highly speculative stocks do come down from their high soon. It takes atleast 3-5 weeks for the stock to go down.

In the case of PCYC which does not have any earnings yet, this stocks has moved from 10 dollars to 60 dollars in a couple of months. I shorted the stock at 50 dollars. The stock was on the 30 day moving average.

1. One mistake I did is to not understand that the stock was consolidating on the 30 day moving average.
This is a tricky situation. How do you know if the stock is going to move up or down.

There is one way to say that which I understood now and it is very important to understand it. The consolidation took 3-4 days on the 30 MA at 50 dollars and in the mean while the DOW was moving up and down. One of those days the DOW when down 188 point. and PCYC was not at all budging. This means the Relative strength is strong and people are holding the stock and the probability of falling is low and the probability of moving higher or dancing in that range is higher.

I did not understand this point and why RS is so important in understand if people are holding or selling or buying.

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