Did you feel that?

If you held on to your speculative stocks last week, then you likely got kicked squarely in the frank and beans and find yourself wondering what to do with these positions.  Sure, some bucked the trend, but most gave back a lot of their recent exuberance. The market doesn't take prisoners and it definitely doesn't play patty cake with anyone like me - the speculative day/swing trader.

Speculative Stock
A general term describing a stock with high risk relative to any potential positive returns. Speculative stocks are often purchased by those who believe the stock will appreciate in value without performing a detailed analysis.

In the wonderful world of speculating, it really upsets me to witness traders get their ass handed to them on days like Thursday and Friday because they held a spec stock all the way down through a 10% drop, or more. Why would you do that? It's a spec play, right? It would take a 20% move to the upside just to get your money back.  You didn't fall in love, did you?

There are,however, good arguments for holding speculative stocks.  For example, if you've done your research on a company and believe it has boomin upside potential,  then you're likely to accumulate more at a discount.  This is more of a long-term approach and requires that you do some digging to truly understand the company so you're not tossing more good money at a bad investment.  BUT, this is not speculative trading - You are now investing and should be treated differently.   SG discusses his opinions on SYNM, for example, after doing extensive research.

I rarely know all the details of a individual company and am a short-term trader.  So, I only hold a spec stock as long as it is still technically supportive of the original setup... hell, the company might be going bankrupt for all I know.  As a swing/day trader, there isn't such a thing as 'hoping' a spec stock will recover - formula for disaster and an ugly divorce.

Few thoughts on long scalp/swing trading in bear markets (again, all speculative trades):

• I don't know enough about the company to hold them as their price drops, just to blindly hope it will bounce back.
• The more bearish the day, the less time I intend to hold long trades.  If I position myself long in a spec, I'm looking for an intraday move so I can scalp that bad boy.  If it doesn't move, I will likely not go to bed with it and I'll try something new tomorrow - highly speculative stocks can have an entirely new face in the morning (reminds me of college).
• I spend more time looking for support levels in stocks (daily and weekly charts) and less time on breakout setups.  For the few stocks I'm willing to swing long in bear markets, I make sure that I'm entering on strong support and reduce the exposure to stocks with high volatility.
• Tighten up the stops.
• Increase cash.
• Scalp more, swing less.

Rules applied to how I played Friday:

• Bought CNO on the way up at $4.72 after it held horizontal support near 4.50..  Sold at MA20 (resistance, previous support).  Scalp. 7.5% profit.  Had it moved down from my entry, I would have sold near 4.50
• Bought GKK after it held horizontal support on the volume move up past Thursday's close.  Overall chart remained generally bearish, so I quickly scalped a nice profit of 8%.  Ultimately, GKK finished down.  Again, spec plays on down days reduces my hold time  - quick profits.
• Mid-day I bought RFMD for my longer-term trading account. This was a horizontal support buy on a chart that has been trending steadily up for months.  Tight stop under 4.50, but swinging up from here is the goal.

That's it - that's the extent of my trades from Friday.  I do have some other positions exposed into Monday, but I'm heavily in cash and comfortable with RFMD.

Good luck next week and don't forget... don't fall in love unless you really know her. Otherwise, keep the tight stops on those spec trades and don't go to bed with her unless you're comfortable waking up next to her (she might look like a bear in the morning).