I usually see your evaluation of Aggressive and Safer to be 180 degrees from mine…I sure wish I could understand your reasoning specially with today’s VRSN example.
This question came in last Tuesday. That day VRSN moved up, but on lower volume. The stock was approaching a series of tops hit in June, July and August. We ran a play from the close that day as ‘aggressive,’ and a play over that resistance as ‘safer.’
VRSN was moving up, but on lower volume. We like to see moves to the upside on stronger or at least above volume. VRSN needed average or better volume as it approached its resistance at the June, July, and August tops. As stocks need buyers to beat tops where sellers previously took over and pushed the stock down, we want to see volume increasing as a stock moves toward a high. Until it breaks that high, it has a good chance of being pushed back down. Until it breaks the resistance point, it has yet to prove it can do that. Indeed, on Thursday, VRSN showed it was having a problem as it showed a doji after a rise, and when right before resistance and after a move up, that can mean some selling. Thus, VRSN had not shown it could break that resistance. Indeed, even after Friday, it still has not shown it can beat that resistance that has pushed the stock back three times.
If the stock breaks that level on above average volume, it has broken through the overhead supply that pushed it down each time as those that bought at the previous peaks sold to ‘get out even.’ That gives it momentum for a further run up without the drag of those selling into rallies. Thus, even though the price is higher, it has shown it is less likely to come back on us and has new buyers behind it for a push higher. That makes it a ‘safer’ play. Before it breaks that resistance it is more of a momentum play as it can again run into sellers bailing out at the previous top. That can push back in our faces, or this can be the time it breaks out. We can trade the move up to resistance, ready to get out if it fails again; if it does breakout, we had a great entry point. If we are banking on it breaking out, however, we could be very disappointed as the tops have been strong resistance. If we are not ready to take action if it comes back on us, it can be disastrous. That is why we differentiate between the two.
