Two Techniques To Help Keep You Out Of A Losing Trade
Using “Triggers” To Avoid Losing Trades
As I wrote in
Dave Landry’s 10 Best Swing Trading Patterns & Strategies:
“By placing your entry above the market for longs, you will only get
filled if the stock begins to move in the intended direction. Of course, there’s
no guarantee that it will continue to move in your favor but at least you won’t
get filled if a rally never materializes.”
I went on to say that entries were usually 10
cents above the prior day’s high but could vary depending on the stock’s pattern
and market conditions. Let’s look at two examples of when you should vary your
entry.
When a stock trades in a narrow range or closes
very well (i.e. near its high for the day), you might want to place your entry
above a 2-3 bar high vs. right above the prior day’s high. This is illustrated
below:
Now let’s look at a recent example. Maverick Tube
(
MVK |
Quote |
Chart |
News |
PowerRating) was recommended
last week in my trading service. Notice that because the stock closed well (on
its high for the day) and was a narrow range day (and also an “inside”
day), I
placed the entry above the 2-bar high. The goal was to help avoid
getting an entry on “noise” alone. Notice that the stock did
trade above above the prior bar’s high (triggering a “normal” entry) but did not trade above
the two-bar high.
The stock then subsequently imploded. By using a higher entry, a losing trade
was avoided.
Another way to possibly avoid a losing trade is
look for a second entry on opening gap reversal situations. Often many rush into
a stock around the open. However, this euphoria soon wanes and the stock
subsequently reverses. By ignoring the first entry and waiting for a second
entry, you will avoid being caught in a bad trade. This is illustrated below:
Now, let’s look at a recent example. Toll Brothers
(
TOL |
Quote |
Chart |
News |
PowerRating) was also mentioned
last week in my service. Notice that it gapped above the entry but this was the
high for the day. The stock then imploded. By waiting for a second entry–above
the opening gap–another losing trade was avoided.
Of course there’s no guarantee that these entry techniques
will always keep you out of a bad trade. However, as you can see, it pays for
when it does.
The above, along with other examples and current market
conditions, were covered earlier today in my interactive presentation.
Email me
if you would like a link to this lesson and/or the archives for the prior year.
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
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