Weirdly enough, things didn't 'feel' that volatile, at least compared to the hectic trading in the "rst few weeks of July. In fact, it's been a pretty quiet trading week for Monkey . . . just one swing trade and a couple of day trades.

My main trade was an Elan short.

The stock has been chopping around a lot recently: over the past month it went from $17 up to $20, retreated back down to $17 before reversing back up this week to the $20 mark. While that suggests range-bound action, the intermediate trend is still downward . . . the stock has been unable to surmount its 50-day average on two occasions now.

Anyway, I'd been looking to get short near the 50-day average. After four consecutive days of strength, the stock came achingly close to hitting my order on Monday before retreating to close near its low of the day. It's always irritating when that happens but I was fortunate in that it created a lovely set-up in the process. I changed my order to short on a break of Monday's low ($19.40).

The order triggered on Tuesday morning and the stock quickly fell away. A weak recovery effort was made at midday but there was little conviction behind it and the stock closed near its low of the day.

This was a beautiful set-up. You had an overbought but downtrending stock coming up to a clear resistance area. You had an obvious place to put your stop-loss order (above Monday's high, which happened to coincide with the 50day average). Best of all, taking a decent-sized position was made possible by the fact that the set-up allowed a tight a stop-loss order.

The last point is key. While I often look to buy or short a stock on a break of the previous day's high or low (as do many traders), it's important to do so only on so-called narrow range-days.

For example, the distance between Elan's high and low point on Monday was just 60 cents.

Consequently, this was also the approximate difference between my entry and my stop loss. The previous Friday, on the other hand, there was a range of $1.40 (a wide-range day, to use the of"cial trader jargon). If your stop-loss was $1.50 or so away from your entry, your risk to reward ratio is awful from the very start. Think about it . . . the stock would have to drop by $1.50 (over 7%) before your initial risk is even covered.

By the close of day on Tuesday, however, I was already up 900, even though the stock had dropped just 60 cents below my entry point.

Big difference.

I'm not saying that traders should only use tight stop-loss orders. If your stops are too tight, you'll keep getting stopped out. If you can keep "nding set-ups like the above, however, you'll be laughing all the way to the bank.

Newbies make the mistake of thinking that trading is all about stock picking and crystal ball-gazing and consequently waste their time asking for tips or messing about in a fruitless search for some magical technical indicator. Trading is all about risk: reward ratios and trade management.

Talking of trade management, I've moved my stop to the break-even point but haven't taken any pro"ts yet. I considered doing so near the close of day on Tuesday but opted to take a chance and let it run a little more. Elan bounced slightly on Wednesday, although it was a modest effort, especially considering the broad market strength on that day.

I'll de"nitely close half of the position if the stock drops down to the $18-$18.50 area. The stock has technical support in the $17 area . . . if I'm lucky enough to see it drop that far, I'll close the position entirely.

As for the day trades, Tuesday offered a similarly sexy technical setup. The Dow had been in a down trend all day before settling into a tight trading range (just 35 points or so) in the hour prior to the release of the minutes of the recent Fed meeting. The release of the minutes ('no rate cut coming' was the instinctive market reaction) saw an immediate break to the downside.

I put in an order to short on a return to the bottom of the aforementioned range. My stop? You can guess at this stage . . . at the top of the same range, just 40 points or so away. My order was "lled and while the Dow went up a little further, the range top was never threatened.

Once new lows for the day were set, the bulls capitulated and it was oneway traf"c to the downside.

I closed the trade near the closing bell, 120 points or so from my original entry, or a risk: reward ratio of 3:1. Unfortunately, I chickened out on the bet size and took a smaller position than the set-up deserved . . . a bet of just 5 per point . . . so my winnings, while quick, were not as healthy as they might have been.

Things were not quite as glorious on Wednesday. The Dow was trending up and I was on the lookout to buy on a dip to a support area. The order got "lled but the index dropped further and hovered near my stop for a while. As soon as it got back up to break-even, I closed the trade.

What happened next? Take-off, with the Dow climbing 180 points in the last two hours of trading. It would have been nice to catch that one but the market doesn't like to make it easy. Can't win 'em all.

Weekly gain/loss: + 1,200
Overall balance: 51,600