Technical analysis of stock trends - 8th edition

chapter thirty-four
A Quick Summation
of Tactical Methods
There are three types of tactical operations: (1) Getting into new commitments;
(2) getting out of commitments which have moved as expected and
show a profit; and (3) getting out of commitments which have not moved
as expected, whether the transaction shows a profit or a loss.
The principles of taking profits based on trends, Resistance and Support
Levels, measuring implications of patterns, and most especially, on the daily
technical and volume action of the stock, already have been covered. These
profit-taking operations seldom present very difficult problems, since the
picture has developed normally and in the way you hoped and expected it
would. The “stepping off” point is usually easy to determine.
The more difficult problems arise in making new commitments correctly,
and in the very important defensive operations of getting out of losing
commitments with the least possible loss.
It should be emphasized that a stock which has ceased to act in a Bullish
manner and which should, therefore, be sold is not necessarily a short sale on
the next rally. In other words, the signal that shows weakness or failure of a
move in one trend is not always a signal to make new commitments on the
opposite side of the market. More often than not, in fact, it is nothing of the kind.
We know that certain moves, such as adverse breakouts from Symmetrical
Triangles or Rectangles, advise us simultaneously to get out of commitments
in what is now clearly the “wrong” direction and to make new commitments
in the “right” direction. The simple failure of a trendline, however,
where the stock merely penetrates an old Minor Bottom without completing
a Head-and-Shoulders or other Reversal Pattern, although reason enough to
get out of commitments which are showing losses, is not sufficiently conclusive,
by itself, to justify reversing policy and making new commitments
in the opposite direction. Therefore we separate the two types of signals as
follows:
Get out of present commitments
• On adverse breakout from Head-and-Shoulders Formation.
• On adverse breakout from Symmetrical Triangle.
471