Here’s Another Way To Manage Your Risk
We may define ourselves as daytraders,
but that doesn’t mean we have to hold on to a trade until our initial stop
loss is triggered. Learning to move our stop loss based on trade
duration, to reflect the ever changing technical condition of the stock, is one
way to reduce trade risk after an entry has been established.
When we find a setup that warrants committing our capital to, we execute the trade with our initial stops in place. As
traders we enter into trades with expectations based on risk vs. reward. Part of
our edge is time based, and if too much time has elapsed after entry, there’s a
good chance that the technical condition of the underlying stock is changing,
and this might be enough to consider pulling in the reins.
12:29:59
Intraday
Setup Alert
General Dynamics (GD)
has just broken through a low level Slim
Jim near session lows. The Low RS issue (
3 Month RS of 11) is down .13 at 56.99.
In General Dynamics
(
GD |
Quote |
Chart |
News |
PowerRating) for instance,
a short entry out of the Slim Jim would give us an initial risk of approximately
.16 based on pattern width, and execution price. Over the course of the next
hour the trade fails to trigger our stop loss, or our bid below the market at
the 2 to 1 level. Although the trade has not gone against us, the character has
changed somewhat.
As mentioned, an hour has passed, and while the
stock has moved in our favor, it has not produced a powerful move out of the
Slim Jim. Furthermore, the stock is now testing prior lows in a lower
consolidation, without breaking down. For me this is a potential warning sign
that the supply that pushed the stock lower might be backing off, or finished
for the time being.
New patterns off of these lower levels are
now potentially setting up. Could it be a reversal off of session lows?
Possibly, but maybe GD will go lower, in tune with its daily trend. One thing
for certain that I can do when concern over the changing intraday technical
condition exists, and that’s moving in my stops. The bigger technical picture
that partly confirmed my original entry still exists, but moving my stop loss to
break even for the time being looks like prudent money management this
“time” around.
So next time there’s concern that a position is
not working out, it may be time to move your stops to break even, and look for
more high probability setups that are moving as anticipated.