Let Your Profits Ride — Here’s How
Staying With A Winning 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 Mercury Interactive
(
MERQ |
Quote |
Chart |
News |
PowerRating) (mentioned recently). When we last left off, we were discussing the fact that it has moved nicely lower (see column archives). Partial profits could (and should) have been taken and the stop was then moved to breakeven.
Further, the stop was then trailed on a two-point basis. We also discussed that on
“windfall” moves, it’s a good idea to take additional profits.
Finally, we discussed how a trailing stop could have been used on the remainder
of the position to (hopefully) capture a longer-term move.
Now that some money has been taken off the table, you’re in a
situation to trail the stop more loosely (as we discussed recently on AMZN). This will help
you “ride out” short-term corrections, thereby helping to participate in a
longer-term move. With that said, we will assume a 4-point trailing stop. And,
since the stock closed at
new lows today, the trailing stop is then adjusted accordingly.
Once again, 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 Tuesday, the Nasdaq opened lower and then generally worked its way
lower for the
remainder of the day.
The July lows (circa 1829) look like the next possible
target here.
The S&P held up better but also generally worked its
way lower throughout the day. This action has it reversing at its 200-day moving
average.
The July lows (circa 1078) are the next possible target
here too.
So what do we do?
It looks like the market is
headed in the direction of the big blue arrow.
No setups tonight, if you traded recently mentioned stocks
such as CYMI or ETFs (SMH, SWH, IBB, BBH etc..), make sure you are trailing a stop
lower.
Housekeeping
I’m a little backed up in emails. I hope to catch up over
the next few days. Thanks for your patience.
Also, almost all of my attachments (e.g. the swing trading primer,
TKO rules, etc…) sent to “Hotmail” addresses seem to get bounced back. Therefore, if you have Hotmail account and did not receive a
reply, try again with another address (FYI:. Yahoo! mail is free and works
great.)
Best of luck with your trading on Wednesday!
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..