Invest and Trade Profitably with Jon Johnson

Education Center

On many occasions, you include the comments “Doji may indicate a change in the pattern.” Many times I have a hard time understanding whether you mean that the new direction will be up or down. The reason I am confused is that for example we are in a LONG play and the stock has come back (say 4%) to test the breakout and now a DOJI occurs on high volume. Now does that mean that the change in direction will be up or down?

August 30, 2000

You ask a good question. In our technical analysis, we use candlestick charting, a Japanese method for plotting stock movements, as part of our analysis. One of the symbols in this kind of charting is a doji, where the open and closing price are in close proximity. It can occur at any time, but after […]

Please describe how you determine the first and second upper channel lines. If possible could you provide an example chart.

August 30, 2000

Upper channel lines tend to be very accurate predictors of pullbacks and bounces during solid uptrends and downtrends. They are plotted to help determine when a stock is ready to pull back after it’s been in an uptrend for several weeks or months, making them an important technical analysis tool in designating target prices as […]

What number of shares is a “partial position?” What number is a full position? Let’s say one stock is 10.00 or less and another is twenty or more.

August 30, 2000

Before buying specific stock and/or options positions, we always know first how much we want to invest. A partial position can mean one-half, one-third, etc., but in most situations we look at taking a whole or half position when we move into a stock or option. That does not mean we won’t invest more later […]

Do you set stop limits on your option trades or trailing stops? In the stock splits newsletter, when you highlight a stock, you mention a reasonable stop limit. How do you determine the stop limit for the option? Do you go through the delta calculation?

August 30, 2000

The stock price is the major influence on the underlying option’s movement, so typically we use the stock’s price to determine when we buy and sell. If a stock holds support, then that is good for the option because the stock typically rebounds from there and the option price does the same. Therefore, when the […]

In order to better understand what constitutes a below/above average day, what do you consider to be average volumes for the NASDAQ and S & P500/NYSE?

August 30, 2000

We look at volume based on the last 50 days of trading because we have found that this provides an accurate picture of what institutions are doing with a stock. To determine this average, you can go to a site like, key in to the Nasdaq chart and set it to either daily or […]

What do the following mean? SOX, VIX, VXN, VXO.

August 30, 2000

SOX – ticker for the semiconductor (chip) index All three of the following measure market volatility: VIX – The VIX, or volatility index, is a measure of the range of trading on S&P 500 options, a key measure of market expectations of near-term volatility conveyed by stock index option prices. It is a secondary indicator […]

When the NASDAQ pulls back from the top of its channel down to the 50 MVA, as it just finished doing, is that both a “pullback” AND a “correction”? What’s the difference? Also, you’ve cautioned that a deeper correction is likely sometime in the next three months. Just how far below the 50 MVA would the index have to fall in order to qualify for a more “meaningful” correction?

August 30, 2000

The move within the channel of an uptrend is ‘normal’ in terms of that channel. Thus a move down to the up trendline that establishes the channel is not a correction. It is a pullback within the uptrend that holds the uptrend. If you are playing that trend, everything is more or less rosy. Of […]

My favorite stock is Openwave (OPWV). Recently they have decided to vote on a reverse stock split. Do you ever play a reverse split? What are the trends of a reverse split? Are they the same as a regular split? What do you think about this particular stock?

August 30, 2000

In the most general sense it is typically not a good sign for a stock to announce a reverse stock split. What a company is doing is taking the outstanding number of shares and reducing them by converting say 4 shares into one share (a 1:4 reverse split). That immediately boosts the share price as […]

When I put in a stop or a stop limit order, does it get filled ahead of regular sell orders?

August 30, 2000

Stop loss and stop limit orders are designed to protect you when positions you own start to fail, but they are rather poor vehicles for doing that. If bad news comes out on a stock you own and it gaps below your stop point, you won’t be protected. With a stop loss you basically have […]

Occasionally you suggest making a ‘partial’ buy which I assume is about half a position. When do you make the rest of it? What does it depend on?

August 30, 2000

You are correct; typically partial positions comprise anywhere from one-third to one-half of what we plan to put into a position. The rest is taken at the next good buy point, e.g., on a move up after a lower-volume test of the breakout (if the initial buy was taken was on a breakout), or on […]

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