I don’t read enough trading literature anymore to know if this is an accepted term. It seems I picked it up somewhere, but I can’t be sure. At best I invented it on my own, at worst I am misusing a term popular in the trading vernacular, thereby confusing everyone. However, even if the term is wrong the idea is right.

For those of you reading my blog you are seeing the word hitch, and the term hitching quite a lot recently. This is being written 03/05/06, and I want to explain more thoroughly. Hitching is nothing more than a prices inability to follow through on a price move. If a price is rallying then it’s logical conclusion is the upper bollinger band or the upper stochastic zone. They can, of course, go further, but that is not the focus here. In narrow trading range markets, price action often does not complete its rally, at least on the first try. And you see many, many patterns orbiting around the 20 day moving average, like it has a hitch in its get along. Therefore the name. The price action has a hitch. One can look at the patterns and it is easy to imagine that the moving average has a gravitational zone, and the prices are just orbiting.

This can also work for prices you expect to decline, They move down nicely until a little below the moving average and just hover there. Do they go up from here or down? Much of it depends on the pull of the market in general, or at least the sector of the stock in question. And be very aware that some sector pulls are stronger than others.

So what to do when you notice hitching behavior? Well, if you are clairvoyant you should stay out, go on vacation, read a book, wait for some sort of move that shows promising trades. If you are already in the market, you can straddle the hitch. If you are predominantly long, that get some shorts going. If you are long and notice a day or two of no follow through behavior find some stocks that have rallied past the hitch or at least are topping past their twenty day moving average somewhere below the upper bollinger band and short them. Make sure they are not in a long up trend pattern though. Just an oscillator will be fine. Then you have straddled the market and protected your positions, and as the whole thing works its way out, you can take profits on both ends. You will have to have patience as the resolution is likely to be one way first and the other way later. Usually these things work out on the down side, unless there is some specific bullish news. The reason is hitches are nothing more than market uncertainty, and we all know how the market feels about that. The worst thing to do, display along and get out of positions for losses. If you have that little confidence in your trades, and/or you are so over exposed you have no money to be contrary, that you should seriously review your trading. For if you cannot survive a hitch how you are going to survive when you are plain wrong?

CT Larsen has been trading stocks since 1990. Now trading large cap stocks exclusively. He has recorded three straight years of greater than 50% annual returns. You can read his blog at http://livingonlargecaps.blogspot.com