How To Manage A Winning Trade
Smoke ’em If You Got ’em
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 your 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 home run.
Let’s take a look at Burlington Resources
(
BR |
Quote |
Chart |
News |
PowerRating), mentioned recently. Notice that it has rallied nicely since
then–hitting new highs on Thursday. When this occurs, make sure you take partial profits and trail a stop higher on the remaining shares.
As mentioned recently: If you’re new to momentum based swing trading and would like more information on the basics such as trend, entries, and money management, email me and I’ll be happy to send you the primer section from my second book.
On Thursday, the Nasdaq opened firmer but quickly found its
morning high and began to sell off. It found its low in early trading and
generally worked its way higher until mid-day. It then generally traded lower
for the remainder of the day–accelerating lower going into the close.
It remains below
its recent trading range/50-day & 200-day moving averages.
The S&P put in a somewhat similar performance.
The 200-day moving average (the blue line below) is an
inflection point here.
So what do we do? It’s pretty ugly out there.
Many sectors, such as the semis and software, remain in meltdown mode. Those that
have been trading sideways, such as telecom, are beginning to break down. Even
previously strong sectors such as Internet and retail appear to be making
transitions lower. Outside of energy and metals & mining, about the only
thing in a decent uptrend is defense–and it’s starting to break down on an
individual issue basis (will the entire sector soon follow?). So let’s get
short, right? Well, the market remains oversold. And, as I preach, shorting an
oversold market isn’t prudent. Therefore, I’d rather wait for a bounce and then
look to get aggressive on the short side.
No setups tonight. I’ll follow up soon on stocks mentioned
recently such as EOG, VLO (longs) and WBSN, AMZN (shorts) soon.
Best of luck with your trading on Friday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. My new 20-hour course is now shipping.
Click here to learn
more, or to order..