What To Do When A Stock Moves In Your Favor
Smoke ’em If You Got ’em
Once again, 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 home run.
Let’s take a look at Amazon.com
(
AMZN |
Quote |
Chart |
News |
PowerRating), mentioned recently as a potential
short. Notice that after triggering on Thursday, it sold off nicely on
Friday. When blessed with a quick move in your favor, make sure you take partial profits and trail a stop
lower on the remaining shares. Ditto for Mercury Interactive
(
MERQ |
Quote |
Chart |
News |
PowerRating), also
mentioned recently as a potential short.
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 Friday, the Nasdaq opened firmer but immediately
reversed and began to sell off. Then, after drifting sideways throughout
mid-day, it resumed its slide. This action has it closing poorly.
The May lows could be the next stop here.
The S&P put in a somewhat similar performance.
This action puts its below 200-day moving average (the blue line below).
So what do we do? Last night I used the
phrase “pretty ugly” to describe the market. Since I now realize
that’s an oxymoron, tonight I’ll use the phrase “ugly ugly” (my editor
would not allow me to use “fugly”). All joking aside, the continued
late-day sell offs suggests that no one wants to take ’em home. Longer-term, the
majority of sectors, like the market itself, are in bona fide downtrends. And,
as mentioned Thursday night, sectors at higher levels such as Internet are
breaking down. So let’s get
short, right? Well, the market remains oversold. And, as I preach, shorting an
oversold market isn’t prudent (okay, it was on Friday). Therefore, I’d rather wait for a bounce and then
look to short with both fists.
No setups tonight. I’ll continued follow up soon on stocks mentioned
recently such as BR, EOG, VLO (longs) and MERQ, AMZN (shorts) soon.
Best of luck with your trading on Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. My new 20-hour course is now shipping.
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