Here’s Why We Have Rules In Place
With the market gapping higher, and then
grinding up on lighter-than-usual participation by the big money, it’s
especially important to maintain discipline and stick to the money management
rules that have gotten you this far in the first place. When it’s a
difficult market, don’t compound the problem by changing rules that have worked
well for you over the long haul.
10:32:23
Intraday
Setup Alert
Silicon Laboratories (SLAB)
is forming an intraday symmetrical triangle setup. The stock maintains a TMs
3 Month RS of 87, and today’s action has the stock up .40 at 25, with a
pivot entry through the resistance line above 25.10.
My preference for intraday trades is to limit my initial risk to .35, and
possibly tighter if it makes sense based on technical support or resistance
lines. In this particular case, a choice of initial stop losses were available,
that were within this risk amount. The stock proceeded to trade higher, but not
to a 2:1 profit-taking level. Watching a stock come within pennies of being able
to take some off the table and then reverse course is something every trader
must come to terms with, if he or she is going to be successful in this business.
Some people might prefer to chase the stock down if it’s within a couple of
pennies, and a case can be made for this action in certain situations. I like to
keep focused on minimizing the initial stop loss, and letting the profits work
themselves out at the predetermined levels. What this means to me is that I’m
usually looking to move up my protective stop loss, possibly before the first
half has even been taken off, and accept those occasions where some small
profits are forfeited for the discipline of trading my plan.
The important part of money management is to find rules that you can
comfortably execute, and which maintain the trading edge that you have found for
yourself. Looking at SLAB in the above example, if my own rules for money
management rules had not been in place, the trade might easily have translated into
breaking even on the pullback, or possibly a small loss as the stock approached
the 25 level. Keeping my rules in place keeps the emotion out of the individual
trade, and in this case leads to eventual profits that are consistent with my
trading methodology.