I would like to share with you guys another method I use for swing trades. I use 2 methods, the other which I covered earlier. This second one has been very successful for me as of late. I think it works well in markets that are trending and either making new highs or new lows. The biggest benefit of this method is that every situation is pretty much covered in the description below. Nothing is really left to your discretion other than the second profit target (but if you get to that point, you won’t care about specifics).
I won’t go into details of the technical entry point as that’s a whole different post. BUT, if you have an entry that you like to take, here is a great method to use to remove some emotions from the trade. The entry I like to use for this method are breakouts and breakdowns. (If you have questions on what those are, just e-mail me).
The method goes as follow (risk 1-2% of your account balance per trade):
Entry and profit taking:
- Find your technical entry (I like to use breakouts and breakdowns for this method but you can also use pullback-continuations if you are experienced and good with your entries. I like breakouts/downs because the entry is specific and not as subjective as when to enter on a pullback).
- After it is triggered, place your first target for +3% of the entry price. If you entered long at $62.50 the first target is $64.38. If short, $60.62 for the 1st target.
- Take 75% of the position off at the first target.
- Move your stop loss to break even after the first target has been hit.
- Second target will be at anywhere between 6% and 12%. This is where your discretion comes in. If it hits your target and made a pullback and now making the next leg up or down, just move your stop up/down to the recent swing and keep trailing it up under the previous day’s low. Sometimes you’ll make just as much on the 1/4 position as you did on the first 3/4.
- If you are not by the computer screen all day, just leave it at 6%.
- If price gaps above or below your trigger by more than 1%, do not take the trade.
- If price moves more than 50% above your trigger to the first target (1.5% of the price), move your stop for 1/2 of the position to the entry price. If price reverses and goes back to your entry, you will close 1/2 of your position and leave your initial target and stop in place for the other 1/2. Or if you want, you can close out the full position at break even and re-enter later if you want.
- This strategy uses momentum for its main reason of profiting. So if prices sharply reverse, that means that the odds are no longer on your side and (60-80%) of the time it isn’t going to follow through.
- If you are triggered into a trade and the price of the trade ranges between your entry and the target for more than 9 days, exit the trade with whatever profit you have until that point. If you still feel good about the trade, close out 1/2 – 3/4 of your position and move your stop to break even. Free up your capital for other trades that are going to move.
OH SHIT situation:
- Price has just gapped up or down on your position, past the 3% stop. Do not panic and exit just yet.
- Switch to the intraday 5 minute chart. Wait for the first swing high or low to be made. Your revised stop is now a few cents above or below this swing. You’ll find that most of the time the price will move back in your favor.
- Leave the new stop in place and close when you reach your 3% stop or close out a portion of your position if the move in your direction was sharp.
- 1st target is at 3% of the price. 2nd target at 6-12%
- After 1st target hit, move stop to break even
- If the trade gets triggered, goes 50% of the way to your first target and reverses, close out 1/2 of all of your position at break even.
- Close the drifting positions after 9 days as now you’re gambling with the move
- The only time you’ll take a full loss is if you get triggered in and prices sharply go against you 3%. In my experience it has been rare if you choose good entries.
Here are some examples of trades I am currently in using this strategy:
Starbucks. Great follow through so far. The red lines are entry, 1.5% to target (which indicates if it reverses back to entry, I will exit at break even) and the first target line of 3%. Notice how prices sharply turned down after hitting the same exact price 3 separate times, to the cent. That is a great sign or an odds enhancer that the next time prices reach it, it will break through with conviction.
CSX – Almost identical to Starbucks. Prices reached resistance 3 separate times. It has reached 1/2 the way to my target, so my stop loss is now at break even. Hoping for follow through to my first 3% target.
EXEL – Here you can see how to handle a trade that gets triggered and goes against you right away. It reached 1/2 way to my target, so I moved my stop loss to break even. The next day, I got taken out for a break even trade. Prices retraced quite a bit and is now looking again to go to the downside. I actually re-entered this trade short, hoping to see some continuation down. My new stop is the high of the previous day. Revised target is 1x my risk for 3/4 of my position.
Lambos and bitches. You follow the rules, you’ll get just that. And so many gold watches, pimp ass Yeezy sneakers and instagram followers it’s gonna make your bipper jump.