There are a lot of services online that contend to offer insights into trading. While some are helpful, the truth of the matter is that trading is an active sport and can only be mastered through trial and error. No amount of self study can compensate for actual trading experience via the application of strategies with real money at risk.
“I hear and I forget. I see and I remember. I do and I understand.”
What works for one trader may not necessarily work for another. Looking back at 2014, this is the single most significant take home lesson that I have come to appreciate. Everyone has a unique personality, and in approaching the stock market, one must capitalize on one's strengths to succeed, while acknowledging one's weaknesses.
For example, if you are an optimist at heart, then you may find that going long stocks which are on the verge of breaking out or which have been oversold and are ripe for a bounce may be your most profitable trading style. Those who are more inclined to distrust stock price advances can still profit through shorting strategies. In other words, the stock market offers opportunities for everyone, but as individual traders, we have to define what approach works best for us.
Now let's take a look at Dominion Resources Inc. (NYSE: D). Per Google Finance, the company "...is a provider of electricity, natural gas and related services to customers primarily in the eastern region of the United States." Its stock has had quite the run since mid-December, with eight straight trading sessions in the green, starting from 12/17/14 and extending to 12/29/14.
$D : Dominion Resources Inc.
As we can see from chart above, $D pulled back appreciably since peaking at $80.89 on 12/29, closing at $76.90 by 12/31, a nearly $4 dollar drop in two trading sessions and below the 9 day moving average at $77.47. Resistance on the daily time frame is now around $78.50 and the next support level seems to be around $76.
+DMI is still above -DMI on the daily chart, so the bulls may reclaim some momentum early in the new year. However, the ADX line is beginning to point down, which may indicate that the strong trending move higher has abated for now, with a trading range being in play.
A look at the weekly chart shows us that $D is still holding above its 9 week moving average (red line) and 21 week moving average (green line). Historically though, this is the most extended that the stock has ever been above both moving averages since the summer.
A pullback to the 9 week MA, currently at $74.19, is not out of the question if bears continue to flex their strength; this would correspond to a move towards the 21 day moving average, currently at $74.67, and thus a back test of the breakout level above the previous highs established in mid-November.