More On How To Manage A Winning Position
Trail ’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 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 recently mentioned
Verisign
(
VRSN |
Quote |
Chart |
News |
PowerRating).
When we left off on Tuesday (see archives, email me for a PDF if you don’t have
access), we were talking about taking partial profits and bumping the stop up to
breakeven. Notice that on Wednesday the stock continued to rally. Therefore, the
stop should then be ratcheted higher. I’ll continue to follow up on this one (both good
in bad).
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 Wednesday, the Nasdaq rallied nicely in early trading, consolidated
throughout mid-day, and then ended the day with a rally going into the close.
This action breaks it out to new highs. Yipeee!
The S&P put in a similar performance.
So what do we do?
Yesterday, I was concerned
because the market had failed to break out to new highs. Then today, it breaks out. It
reminds me of my farther-in-law: When the fishing is poor, he bitches and immediately
catches a fish (I think he has one hooked first and doesn’t tell
anyone). Where was I? Oh yeah, on Wednesday the S&P broke out to multi-year
highs. The Nasdaq broke out to multi-month highs and is just shy of multi-year
highs. This action keeps the big blue arrows pointing upward (email me if you
need help drawing them). If you are already long (as you should be), trail
a stop higher and take partial profits if offered. On new positions, you might
want to wait to make sure the market follows through.
No setups tonight. We will look to get aggressive again if
the market follows through and then has an orderly pullback.
Best of luck with your trading on Thursday!
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.