Two Simple Techniques To Help Ensure Your Success
Knocked Off The Trail
As mentioned ad nauseum, 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 Cymer (CYMI). When we last left off (see
column archive for 08/12/04), we were discussing the fact that it has moved nicely lower. Partial profits could (and should) have been taken and the stop was
moved to breakeven. Further, the stop was then trailed on a two-point basis. On
Wednesday, Cymer rallied to hit this trailing stop. As you can see, without money management,
this slightly profitable trade (overall) would have resulted in a loss.
The offer still stands: 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.
Watch For Opening Gap Reversals
Teva Pharmaceuticals
(
TEVA |
Quote |
Chart |
News |
PowerRating), mentioned last night as a
potential short, gapped lower on the open but quickly reversed after only trading
slightly lower (a). When a stock gaps down, be willing to wait (vs. entering on
the open) for the opening range to be established. This is especially true
when the market itself is also reversing from a gap lower (see Nasdaq action
below). As you can see, this simple technique will often help you to avoid
potentially losing trades. FYI, discretionary techniques such as this one were
discussed in a presentation that I did earlier today. Email me if you need the
link.
On Wednesday, the Nasdaq gapped lower on the open but quickly found its low and
began to rally. Then, after consolidating throughout mid-day, it resumed its
rally in late-day trading.
This action has it closing well.
Ditto for the Ps.
So what do we do? Wednesday’s rally was
impressive. However, the trend, so far, remains down. Therefore, continue to
focus on the short side but wait for entries in light of recent strength.
As far as setups, aforementioned Teva Pharmaceuticals
(
TEVA |
Quote |
Chart |
News |
PowerRating)
still looks like it has the potential to resume its downtrend out of a pullback.
Wait for an entry though since the stock traded higher on Wednesday.
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
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