How To Take Profits And Control Risks
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 homerun (through the use of trailing stops).
Let’s follow up on recently mentioned Verisign
(
VRSN |
Quote |
Chart |
News |
PowerRating).
Notice that the stock rallied today to hit the profit target (in this case,
2-points–see my Primer mentioned below for profit/stop guidelines) before
settling back a bit. Partial profits (half) could (and should) have been taken and the stop was
then moved to breakeven (the same as the entry).
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.
Protective Stops On EVERY Trade
Unfortunately, as you know, I’m not always able to predict
the future correctly. Thanks to an announcement from Wallyworld, the Retail
HOLDRs
(
RTH |
Quote |
Chart |
News |
PowerRating), mentioned recently, have imploded. Remember, since NO ONE
knows exactly where a stop is headed, use protective stops.
On Tuesday, the Nasdaq chopped back and forth in narrow
range trading before closing poorly.
Ditto for the Ps.
So what do we do? I’m concerned that this
market has essentially gone nowhere for nearly 3-weeks. Hopefully, it’s just
consolidating it’s recent gains–building a launch pad. Since we can’t
trade on hope, wait for the market to breakout to new highs (and subsequently
pull back) before looking to establish new positions.
No setups tonight.
Best of luck with your trading on Wednesday!
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.