Should You Exit A Losing Trade?–My Answer May Surprise You
Stay With A Losing Trade?
KLA-Tencor
(
KLAC |
Quote |
Chart |
News |
PowerRating), mentioned recently, triggered an
entry an initially moved in the intended direction. However, the stock reversed
on the following day. Now that you have a loss, you have to decide if you are
going to follow the old Wall Street adage “cut your losses short”
or stay with the position.
Moves take time to develop and often “head fake”
before resuming the trend. Therefore, you have to give the position enough room to
“breathe.” For a stock of this price and volatility, a stop/initial
profit target of around 2 points is about right (this is based on the guidelines
outlined in my primer on swing trading, see below). Notice that the stock
subsequently turns
around and begins to move in the intended direction. The stop is then
trailed lower. Of course, they don’t always come back, but that’s what stops are
for. I’ll discuss this example in more detail on Wednesday during my weekly
audio/visual presentation (see below).
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 Tuesday, the Nasdaq chopped back-and-forth but did
manage to end in the plus column. This action keeps it at its 200-day moving average.
The S&P also chopped back-and-forth.
So what do we do?
The trend is still down.
However, the indices have been trading mostly sideways for nearly two weeks.
This choppy action does not bode well for the momentum based trader. Therefore,
focus on those areas that can trade independently of the indices. Energy and
metals & mining are good candidates here (as potential shorts) since they
appear to have topped.
As far as setups, for the aggressive,
Peabody Energy
(
BTU |
Quote |
Chart |
News |
PowerRating),
in coal, looks poised to continue its recent slide out of a big picture top
(head and shoulders like).
FYI
On Wednesday at noon Eastern, I will be doing my weekly
interactive audio/visual presentation. I plan on covering current market
conditions and learning examples such as KLAC (mentioned above). Email me if you
would like to participate, or if you would like the archive to
the recording(s) if you can’t make it live. Hope to see you there!
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.