Stick with a losing trade until it becomes a winner?
Dave Landry is principal of Sentive Trading, a money management firm, and a
principal of Harvest Capital Management. Mr. Landry is the author of two top
selling books,
>Dave Landry’s 10 Best Swing Trader Patterns And Strategies and
>Dave Landry On Swing Trading.
If you would like a free trial to Dave’s Nightly Swing Trading Alerts Report
Have you every exited a losing trade then watched in agony as the stock took
off without you? Well, “IT” happens. However, you can reduce the
chances of this occurring by placing your initial protective stop outside of
the normal volatility of the stock and by sticking with the stock as long as the
stop isn’t hit.
Let’s follow up on Gerdau Sa ADS
(
GGB |
Quote |
Chart |
News |
PowerRating), mentioned recently. Following the
rules outlined in my Swing Trading Primer (email me if you need a copy), a stock
of this price and volatility would require at least a 1 1/2 point initial
protective stop (and equal profit target). Notice the stock triggers an entry
but fails to follow through to the upside. What’s worst is that it sells off
fairly hard over the next few days. Luckily, it does not hit the initial
protective stop and subsequently rallies to hit the initial profit target.Â
Partial profits are taken and the stop is then trailed to breakeven (for
more on money management, study the primer).Â
Of course they won’t always come back and you will occasionally get stopped
out. However, as you can see, it often pays to be patient and use an appropriate
stop.Â
NOTE: I discussed the above in more detail in last Wednesday’s weekly
interactive lesson. Email me if you need a link.Â
On Friday, the Nasdaq traded back and forth throughout the morning,
sold off in early afternoon trading, but then recovered going into the
close.Â
Ditto for the Ps:Â
So What Do We Do? Ideally, I would have preferred for the indices to
pull back more deeply. This would have been healthy for the market. Why? Because
it would have shaken out some nervous longs and attracted some eager top
pickers–adding fuel to the next up leg. Since the market did do this, you might
want to focus on those individual issues that have.Â
As far as setups, for those with big ones*, volatile Sandisk
(
SNDK |
Quote |
Chart |
News |
PowerRating) looks
like it has the potential to resume its uptrend out of a Double Top Knockout
(like) pattern. Wait for an entry though since it was down fairly hard on
Friday.
Enjoy Your Holiday and best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. If you would like a free
trial to my trading service, click
here.
*Trading accounts