If You Want To Be Successful Longer-Term, Make Sure You Do This
Smoke ’em If You Got ’em
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 Petroleo Brasilero
(
PBR |
Quote |
Chart |
News |
PowerRating), mentioned
recently. Notice that the stock triggers and moves over 2 points (an appropriate
profit target/initial protective stop for a stock of this price
& volatility see notes on Primer below for more details) in the intended direction. In a situation like this, partial profits could (and should) have been taken and the stop was then moved to breakeven
(and subsequently trailed lower on a 2-point basis). As you can see, through the use of a simple
money management system–using trailing stops and profit taking–you set
yourself up for a potential home run (barring overnight gaps). I’ll follow up on
this one in Wednesday’s audio/visual presentation.
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.
I also have a an introduction to shorting article for those who are not familiar
with playing both sides of the market.
On Monday, the Nasdaq chopped back-and-forth for most
of the day and then sold off going into the close. This action keeps it at is
200-day moving average and below overhead resistance.
The S&P tried to rally a few times but gave up most of
its gains late in the day.
So what do we do? I think the big blue
arrows speak for themselves. If you’re new to this column, show the index charts
to a small child and ask them which way they are headed. As a “trend
following moron” this is essentially how I determine trend. Once
again, about the only good thing I can gleam is that we are still due to bounce.
However, so far, I’m not very impressed. Look to play the short side but keep
positions small until we see a meaningful bounce.
As far as setups, KLA Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating), in the weak
semis-equipment & materials sub-sector (a), looks poised to resume its slide
out of a pullback (First Thrust-like).
Best of luck with your trading on Tuesday!
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.