Does Tuesday’s Action Give Us An ‘All Clear?’
Smoke ’em If You Got ’em
Money management–the use of protective stops, trailing stops, and profit taking–is crucial to your long-term success as a trader. A simple money management system is to take at least half of your profits when they are equal to or exceed your initial risk. You then move your protective stop on your remaining shares to breakeven. This way, barring overnight gaps, you have a “free” position that has the potential to turn into a hom erun (through the use of trailing stops).
Let’s follow up on Peabody Energy
(
BTU |
Quote |
Chart |
News |
PowerRating), mentioned
recently. Notice that the stock triggers and moves over 2 points (an appropriate
profit target/initial protective stop for a stock of this price
& volatility see notes on Primer below for more details) in the intended direction. In a situation like this, partial profits could (and should) have been taken and the stop was then moved to breakeven. As you can see, through the use of a simple
money management system–using trailing stops and profit taking–you set
yourself up for a potential home run (barring overnight gaps). I’ll follow up on
this one in Wednesday’s audio/visual presentation (see below for more details).
If you’re new to momentum-based swing trading and would like more information on the basics such as trend, entries, and money management, email me and I’ll be happy to send you the primer section from
my second book.
I also have a an introduction to shorting article for those who are not familiar
with playing both sides of the market.
On Tuesday, the Nasdaq sold off fairly hard in early
trading. It found its low late in the morning and then it chopped sideways. Then,
after the Fed Minutes were released, it rallied sharply. This action has it
reversing right at its old lows.
The S&P put in a similar performance.
So what do we do? The fact that the indices reversed
after skirting new lows for the year is is a positive. So far though, they still
remain stuck in a short-term sideways trading range. Therefore, as usual,
follow through will be key. For now, avoid taking new positions until the market
can prove itself further.
No setups tonight.
FYI
FYI, I will be doing my weekly audio/visual show on
Wednesday at noon eastern. If you’d like to participate or would like links to
this and prior shows, send me an email.
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Learn my newest and most advanced version of my Bow
Ties Strategy. Click
here for details.