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Follow The Money - Trade Where The Action Is

Tsutae kamada: when the hungry money hits its target, we can expect huge gains. He says don't try to rationalize the situation; follow the hungry money and capture the moment. When a stock surges, don't jump in, because you don't know where your stops are, he says. Mcdonald's is a great example of how to follow the hungry cash in a market rally.

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Heinrich Hodemniac
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228 views4 pages

Follow The Money - Trade Where The Action Is

Tsutae kamada: when the hungry money hits its target, we can expect huge gains. He says don't try to rationalize the situation; follow the hungry money and capture the moment. When a stock surges, don't jump in, because you don't know where your stops are, he says. Mcdonald's is a great example of how to follow the hungry cash in a market rally.

Uploaded by

Heinrich Hodemniac
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Follow The Money -- Trade Where The Action Is

By Tsutae Kamada

Let me begin with a drastic example from Jan. 3, 2001. Shortly after 1:00 p.m.
ET, the Federal Reserve made a major announcement of its decision to cut
interest rates by 50 basis points to 6%. The market reaction was quick and
frantic. The Nasdaq Composite index shot up more than 200 points in just 20
minutes. In the same time frame (1:15 p.m. to 1:35 p.m.), Broadcom (BRCM)
surged from 78 13/16 to 97; SDL Inc (SDLI) went from 142 to 173; Juniper
Networks (JNPR) from 106 11/16 to 118 7/32; and CIENA Corp (CIEN) from 67
13/16 to 83 23/32. Short sellers were rushing to cover their positions desperately
while daytraders and short-term traders were attempting to catch this explosive
upward momentum.

When the hungry money hits its target, we can expect nothing but huge gains.
Remember, all of the four stocks above had been strongly downtrending, and this
spectacular rally happened in the midst of a bear market. Don't go against the
hungry money. It will destroy you. Forget about the trend of the market. Don't try
to rationalize the situation. Just follow the hungry money and capture the
moment.

I hear some of you saying, "That sounds ridiculous. You just can't jump in the
market!" Well, let me share something Larry Connors (author of Connors on
Advanced Trading Strategies) told me. When I asked how he would react in a
similar situation, he replied, "I would jump in, because I know where my stops
are." His response surprised me -- I thought it would be more logical. A few
minutes later, I realized his answer was rational. I had been paying too much
attention to the first half of his answer -- especially the words "jump in." I was
forgetting the part about knowing where his stops were. Nobody knows how long
a rally will last. The only way to find out is by jumping in. Yes, anyone can jump
in, but not everyone would place a stop immediately after jumping in. This may
be the crucial difference between pros and amateurs.

For those of you who are scared to jump in, I have a way to time the entry point
when facing an explosive situation. This method came from my trading
experience, and later I ran across other traders who had a similar concept. I call
it my "Double Three strategy." It's very simple to use and has been especially
effective for daytrading. Again, this strategy works better with surging stocks.

If the same thing happens three times in a short period of time, we tend to take it
seriously. Things could happen once or twice, but if they happen three
consecutive times, arguably, this is no longer coincidence. That's the reasoning
behind my Double Three strategy. I use three-minute charts, and I will buy the
third higher consecutive close. That's it.

Let's see how the Double Three strategy worked on Broadcom (BRCM) and SDL
Inc (SDLI). Broadcom made its first higher close at 1:12 p.m. (see chart below),
and proceeded to make its third consecutive higher close at 1:18 p.m. I bought
the stock at the 1:18 p.m. closing price of 86. At 1:21 p.m., Broadcom hit 92, and
at 1:24 p.m., it was trading around 95. It was a great run.

SDL Inc (SDLI) made its first higher close at 1:21 p.m. and recorded its third
higher consecutive close at 1:27 p.m. (see chart below). My entry price was the
same as the 1:27 p.m. closing price of 155 1/2. SDLI exploded and hit 174 1/2 at
1:39 p.m..
Of course, we can utilize conventional methods such as pullback strategies. One
thing to keep in mind is that under explosive situations, stocks often do not pull
back or sell off until gains are far overextended. This example of CIENA (CIEN)
is one of those rare successful pullback plays.
It may not be easy, but sometimes we have to forget conventional trading rules.
Common sense says we should be looking for shorting opportunities if stocks are
pulling back from their lows. But the truth is that stocks cannot go down forever.
They have to reverse direction to the upside sometime. As I mentioned earlier, if
the hungry money hits its target, the only result we can expect is an explosive
price surge. Forget about the trend of the stock. Don't fight the hungry money.
Just follow it and capture the momentum.

I would like to conclude with an insightful comment from Eddie Kwong, Editor-in-
Chief of TradingMarkets.com: "It is both difficult and scary for traders to buy high
and sell higher. But you simply have to accept the fact that there are days when
the market gets caught in a tornado. In a tornado, stationary objects are pulled
loose from their foundations and taken for a ride to unexpected places. The
traditional rules and patterns don't apply on those days because they are purely
momentum-driven. Stocks that are in motion will continue as such. Nimble
daytraders will earn more on these days than they do in typical week. On such
days, you have to suspend your search for conventional setups and simply 'go
where the action is.' Going where the action is is an art that is only learned
through experience."

Good luck and happy trading.

Copyright © 2001 by TradingMarkets.com, Inc.

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