Here's What I'm Doing With The Homebuilders

I have appreciated the many emails lately about my trading style, and tonight I want to address/answer a few of the questions. Hopefully in the process, it will help you folks to better understand my columns.

My trading style is such that I either trade pullbacks or extensions that manifest in the form of patterns into a support or resistance Fibonacci price zones. Those patterns may be in the form of:

1. Gartley Pattern

2. Butterfly Pattern

3. Time Symmetry

4. Price Symmetry

5. Other Misc. Patterns

So, as you can see, I will either be trading the pullback in a trend or in essence looking for reversal trades in extended sectors or markets.

What kind of market environment do you do well in?
I do well in two types of markets. A) sideways market conditions and B) trending conditions with regular symmetrical or patterned pullbacks.

What kind of market environment do you do poorly in?
In a runaway market melt up or market melt down.

Recognizing this is critical to a trader’s success. That is, to know your style and how it performs in various market conditions. Not only do you recognize it, but you can then create ways to improve upon it.

In Friday’s column I focused in on Homebuilders. The sector is extended and hitting many parameters that I look for in a Reversal Short Opportunity.

Are you calling a top in that sector?

Absolutely not. I’m simply looking to extract gains in normal up and down price movement and what I’ve found to be repeatable patterns.

Do you look for confirmation before taking reversal trades?

Without question, I look for confirmation. I use candlestick charts and drill down to lower time frames to look for reasons to take a position. If there is no structural reason to enter the trade EVEN THOUGH THE PATTERN IS COMPLETE…I will not take the trade. It is critical to my strategy to look for confirmation.

So, going back to the homebuilders. If this sector continues to melt up, I will potential lose some money on those trades IF I get triggered in. I have not been triggered into those trades yet by the way. I WILL notify you when I do though. However, if these patterns play out as most do, I could be in for an excellent trade and add to my bottom line.

Have a great night.

Derrik Hobbs