Today’s New York Times has an interesting article on investor perception.  90% of investors confronted with a strong trend as we see here consider it more risky than a pattern with frequent drawdowns.  Using Wall Street Think, if 90% of investors think that way it must be wrong.

And in fact that reaction contravenes the first rule of trends — that the trend tends to continue.  But it is understandable.  We see the long run and wait for the reaction to buy, because we know that a reaction is coming.  Eventually we get frustrated and jump in just at the time the reaction starts.  So a great deal of courage is required to join a running trend.

But this should be easier for technicians.  First of all you calibrate your commitment.  You divide your capital into tranches — in the case of the Dow and the Qs 4 or 5 units at this point.  Second of all you set a stop — money management or Basing Point to limit any losses on the first tranche.  In this case the Basing Point is under the low of  September.  A fair distance back there.  So you put a smaller tranche on the table, or you use a money management stop of 5-6%.  O’Neil would say 8%.

If a reaction occurs that does not take out the stop AND A BASING POINT IS MADE you put on another tranche, and then another when a new high is made.

Alternatively you can wait for a substantive reaction here and the setting of a Basing Point and then enter.  This is probably the most conservative tactic.  As every one knows conservative traders make the least money.  And.  And they also lose the least.

This is an aggressive trade, make no mistake.