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Time for Entry, Time for Exit

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Calculating number of up or down days is an essential tool.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

I've received several emails about my piece on the 6 down days in a row suffered by the Dow Transports, as well as how the average is down 2.5% today.

Well, thankfully, I'm not prescient (that would take the challenge and joy out of trading). But like many Minyans, I recognize that a chart shows many things at once. And the first thing that jumps out at me when I look at a chart is the number of up or down days in a row.

An observation that Dow Transports hasn't seen 6 up days in a row since October 2008 is a testimony to its newfound strength. While that's an intermediate-term positive if it holds, it might be showing runners' exhaustion in the short term.

This is actually a very important tool that I use for timing position entry. If I find a chart that seems to be a perfect long in every way -- except that it's had too many up days in a row -- well, the timing of my long trade might be off by a couple of days.

On the other hand, if there are too many down days in a row, a short initiation might not be the best thing to do - even if the stock is on the short list.

Can stocks still plow through in the direction of recent trend? Yes, absolutely - and I know of no agency to which traders can go to register their complaints about stock behavior, unless they approve of TSRP.

But since we're talking about probabilities and not certainties, it helps to pay attention to all factors that can influence those probabilities.

I usually keep such stocks on the radar for position entry (both long and short) at a more opportune time, since, in my short-term trading, even a couple of days of off-entry might mean the difference between "financial staying power" and a forced exit.
No positions in stocks mentioned.

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