Take profits or let them ride? Here’s how to do both
Dave Landry is principal of Sentive Trading, a money management firm, and a
principal of Harvest Capital Management. Mr. Landry is the author of two top
selling books,
>Dave Landry’s 10 Best Swing Trader Patterns And Strategies and
>Dave Landry On Swing Trading.
If you would like a free trial to Dave’s Nightly Swing Trading Alerts Report
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 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 the Accelerating Momentum Strategy (email me if you need
the rules) on recently mentioned Autozone
(
AZO |
Quote |
Chart |
News |
PowerRating). Noticed the stock
triggers an entry and then sells off nicely over the next few days. Following
the general rules of my swing trading primer (email me if you need a free copy),
a 3-point initial protective stop and profit target is used. Notice that on
Friday, the initial profit target is hit. Partial profits could (and should) have been taken and the stop was then moved
to breakeven–the same as the entry. This now sets us up for a potential homerun
on the remaining shares.
I’ll follow up on this and many other examples in
next Wednesday’s interactive presentation. Email me if you need more information
(the same instructions to join each week). I also have the links to
the prior year available (covering subjects such as
money management, position management, entries, damage control, scanning
etc..).
On Friday, the Nasdaq rallied in the morning, traded
back-and-forth throughout the afternoon, and then rallied again going into the
close. This action has it nearing its 50-day moving average.
The S&P traded back and forth in narrow range
trading. It did manage to end slightly in the plus column though. This action keeps
it just above its 50-day moving average.
So what do we do?
The action in the indices wasn’t very
impressive. However, selected sectors were especially strong. So far, so good.
For now, though, I think we should wait to see if the market and sectors can
continue to follow through. If this truly is a turnaround, we should see plenty
of opportunities soon. Therefore, exercise caution on the long side. On the
short side, watch for opportunities in areas which may (still) be in transition
(from uptrends to dowtrends) such as biotech.
As far as setups, the Biotech HOLDRS
(
BBH |
Quote |
Chart |
News |
PowerRating) look poised to continue lower
out of a First Thrust/Inverted Cup and Handle-like pattern.
Best of luck with your trading on
Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. If you would like a free
trial to my trading service, click
here.