Here Are Simple Techniques To Help You Manage A Trade
My thoughts and prayers go out to my friends in England.
What To Do AFTER You Enter A Trade
As I’ve mentioned in the past: 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 you 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 homerun (through the use of trailing stops).
Let’s follow up on the Oil Service HLDRS
(
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Quote |
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PowerRating) (mentioned recently).
Although this one did not turn into a “homerun”, it makes for a good
example nonetheless.
Following the rules outlined in my swing trading Primer (email me if you need a
copy), the stock triggers and then subsequently rallies to hit the profit
target. Partial profits are taken and the protective stop is then moved to
breakeven/trailed higher on a closing basis. Notice today that this stop was hit
for a small gain on the remaining shares. Although the stock promptly reversed,
I can assure you that they won’t always do this.
As you can see, the use of simple money management can help you to manage a
winning trade.
On Thursday, the Nasdaq gapped lower but immediately reversed and began to
rally. It tested its lows once more and then it generally worked its way
higher for the remainder of the day.
The S&P also recovered after an early decline. This
action has it reversing after probing below the bottom of its trading range
(i.e. support).
So what do we do?
The fact that the
market recovered after testing the bottom of its trading range is a positive.
However, as usual, follow through will be key. This is especially true based on
recent conditions. This market seems to change its mind more than my wife in a shoe
store (don’t worry, she doesn’t read my column). This action is keeping the Big
Blue Arrows pointing sideways. Therefore, as trend traders, we should avoid
trading except in those issues that a) remain in a strong uptrends AND b)
can trade independently of the indices. Right now, energies are the only area
that fit the bill.
Housekeeping
Once again, I have last week’s audio/visual presentation* and those for the prior year archived. They cover many topics such
as scanning, choosing the best setups, psychology, position management etc… Email me if you would like
the (free) file containing the links. NOTE: I’m a little backed up at the
present, but plan on catching up over the next few days.
Best of luck with your trading on Friday!
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.
*Editor’s Note: These
are great. Email Dave–you won’t regret it.
Brice