When To Scratch A Trade

• September 3, 2003
• Rob Hanna

I’m on a “working vacation” this week so I’m going to
keep it short and sweet today. The breakout we’ve been waiting on for a long
time materialized yesterday, and as the indices all hit new highs, scores of
individual stocks also broke out basing formations. For the last two days,
breakout players have had their pickings.

 

So what do you do when you’ve
got so many setups to choose from, and trades triggering one after the other?

 

Demand the best. Not just the
best fundamentals and technical setups, but demand the breakout follows through
quickly. Most of my best breakout trades are those that work right away. When
you get your fill and the trade begins to run shortly after, then the likelihood
of that trade being successful increases substantially. 

 

If you purchase a stock because
it looks to be breaking out, and then just sits there, don’t be afraid to
scratch the trade. This applies to trades of all time frames. Scratching
non-performing breakouts is especially important for people that are already
fully invested. Don’t let your capital remain hung-up in a dead trade when there
is so much else out there that is moving. 

 

I’m very encouraged by the
market action the last two days. It looks like the start of a new leg up to me. So
take the trades as they present themselves, and I would certainly be focusing
more on the long side.

 

Until Monday,

Rob Hanna

robhanna@rcn.com