Without This, I Doubt That You Can Be Profitable
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
Someone recently emailed me criticizing my methodology. They said that
“if it wasn’t for the money management, it wouldn’t work.” Well, I
think I have to agree with them. In fact, I can’t imagine any system
working without money management.
Let’s review the basic money management of my methodology as outlined
in my swing trading Primer (email me if you need a copy). You determine how many
points you will risk on a trade based on the price and volatility of the
stock-in general higher priced/higher volatility stocks tend to fluctuate
more. After a trigger-a sign that a stock is moving in the intended direction,
the protective stop is placed at the predetermined level. This amount is also
used for the initial profit target. Should a stock hit this level, you take half
your profits off the table and bump your stop up to breakeven on the remaining
shares (NOTE: you should also trail your stop higher on a closing basis even if
the initial profit target isn’t hit). This way, you have a chance at a
homerun on the remaining shares and the worst you can do (barring overnight
gaps) is a scratch on the remaining shares. Let’s look at a stock mentioned
recently in my trading service.
Using the rules from my aforementioned Primer, let’s follow up on recently
mentioned Novellus Systems
(
NVLS |
Quote |
Chart |
News |
PowerRating). The stock triggers an entry and then
rallies to the initial profit target. The stop on the remaining shares is then
raised to breakeven. The stock then pulls back but so far, has not hit the
trailing stop. I’ll continue to follow up on this one in this column and in my
weekly A/Vs.Â
height=”311″>Sometimes, the stock his hits the profit target and then comes right back in
to stop you out on your remaining shares. Let’s take a look at Nektar
Therapeutics
(
NKTR |
Quote |
Chart |
News |
PowerRating), mentioned recently in my service. Many times, without
money management, these profitable trades (overall) can result in a loss. I call
this a “better than a poke in the eye trade.”
height=”311″>And of course, sometimes you just get stopped out. In case your wondering why
I don’t show more of these there are two reasons: 1) I’m rarely wrong (I WISH!)
and 2) protective stops should be a PASSIVE decision whereas profit
taking and longer-term trend following are ACTIVE decisions. Â
height=”311″>I expanded upon the above using many other examples earlier today in my
weekly audio/visual presentation. I also covered current market conditions.
Further, IÂ did some poor imitations of a popular TV host, Arnold
imitations, spilled some coffee, made quite a few comments that were not
politically correct–including a few Brokeback Mountain jokes (not that there’s
anything wrong with that!). Click
here to view it or Email me if you need a link to this and prior
presentations covering a plethora of topics.Â
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on every
trade!
P.P.S. If you would like a free
trial to my trading service,
here.