I Prepare A" Trade Of The Day" For My Daily On- Line Trading Labs

Category: Finance.

Trading in the stock market can be very tricky, especially if you re looking at more than one position. I prepare a" Trade Of The Day" for my daily on- line trading labs.

While certain strategies are inherently complex, managing multiple positions of even the most simple strategy can quickly become an" awesome" task! This report is published every morning prior to the market s opening and it details or outlines a trading plan for that particular stock. Additionally, I prepare a list of 3 or 4 other stocks to watch. Recently, I was looking at trading ADVP down for the day. The idea is to have an additional trade or two to fall back upon in the event that we re unable to get into the Trade of the Day. We quickly moved to a secondary trade in CMCSK, moving in and out 2 or 3 times in the first hour. The challenge that morning developed very quickly as the planned trade appeared NOT to be cooperating for an entry.

During this time, ADVP began to move and while our attention was diverted, it had actually confirmed down and moved below what we later determined was a prudent entry point. While you re in the rattle of the battle , with the stock price squirming and wiggling around, it s extremely easy to totally miss the precise time to move into a position, despite your best efforts! In other words" we MISSED an almost sure trade on the ADVP tombstone while our attention was diverted to CMCSK. For the past several months in the Trading Lab, I ve been paying a lot of attention to teaching the traders how to use a given set of rules to help simplify their trading. The results, while NOT devastating( we made about$ 200 on the trade) certainly were responsible for us missing another$ 500- $600 of profit. These rules were NOT in place at the time the trading was being done. So let s spend a couple of minutes going over these rules so we can minimize preventable losses.

Let s take a close look at the rules and how they can simplify your trading, freeing up your attention for additional profits. We ll come back and apply these rules to the above chart to demonstrate the difference in profitability. Rule# 1. For example, if you are trading into a short. that is you anticipate the stock price will move down, and then let it do something to convince you it s actually moving lower BEFORE you enter the trade! Always let the stock price CONFIRM the anticipated direction before entering the trade. That confirmation can be something as obvious as a specific dollar amount of movement or it can be a less conspicuous move below a current support price. Once you re in the trade, immediately place a stop loss on the position.

Rule# 2. I use an amount equal to about 1/ 2 the average daily movement of the stock price. It also caps your potential for loss! This allows the stock price to wiggle around a bit without taking you out of the trade prematurely. Rule# 3. This allows you to stay in the trade more tightly but still allows the stock price to wiggle around without taking you out too soon. Once you re profitable by 1/ 2 the stop loss amount, replace the stop loss with a trailing stop, lagging the current price of the stock by about 1/ 2 the stop loss amount( 1/ 4 the average daily movement) .

Notice also that it moves your" stopped out" point to approximately breakeven! Rule# 4. If your stock continues up for even greater profit, you should consider tightening the trail to around 1/ 2 the present amount, thus locking in even higher profits! LEAVE IT ALONE! This is like putting your trades on auto- pilot , freeing you up to attend to other trades! Let the stock price movement take you out of the position via the stop loss or trailing stop!

Think about it. following these rules consistently can free you up to do other trades and possibly double or triple your profits as you find yourself trading much more safely on 2 or 3 times the number of trades! Bob Eldridge

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