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Managing the trade is where we finally put all our analysis to work. Here we apply our trading discipline to protect our valuable capital and capture profits. To me trade management is the most important and the most difficult aspect of investing. This is where most investors and traders fail. They let their emotions take control and make poor decisions, decisions they know they shouldn't make but do so anyway. The result - they loose money. The following steps describe a formal process that helps to overcome the emotional side of trading.
Keep track of the performance of the stock and any news that might impact the planned entry point. Using the alerts you set earlier, monitor progress of the price of the companies on your watch list.
The alerts set earlier are an indication that the price is nearing the entry price zone. Then monitor the price action using available charts such as the daily, and 60 minute chart. When all the trade criteria are aligned, enter your limit order. Once you receive confirmation that your order has been executed, it is time to enter your stop order. If you do not like exposing your stop order to the market makers, then at least enter an alert to warn you that you need to exit the stock as it hits your stop price.
Periodically, review your positions to assess if the trade is going as expected. Also, look for any new news or events that might impact your original analysis and change your strategy. Most financial web sites, like Yahoo! Finance and MarketWatch have email alerts on news events for individual stocks. It is a good idea to take advantage of these services for each of your positions. Adjust the exit price and stops if deemed necessary. Do not lower your stop. Premium members will receive an email alert on any changes in the exit price or stop adjustments.
Good capital management suggests that you capture some of your profits and let the remaining run. This helps to capture some initial profit from the trade. Then adjust your stop up to at least the entry price to avoid a losing trade. Selling part of your initial position frees up some of your capital to take positions in new opportunities. During strong up trends sell 1/2 of your position at or near a key intermediate level that usually represents resistance. If the market is either flat or in a down trend sell 3/4 of your position and tighten up stops accordingly. It might also be prudent to sell the entire position. Ideally, use areas of resistance for longs and areas of support for shorts to determine where these intermediate areas lie.
Sell your remaining position at either your updated target or your updated trailing stop. You don't want to be to greedy, hoping the price will keep going up. Taking profits is a good thing. There are always new opportunities available.
Every trade offers an opportunity to learn. Since you have documented each trade in detail, you can go back and review what went right and what went wrong. By analyzing each trade you can learn from any mistakes you made as well as what went right. You need to separate what was "luck" from skill. Look for patterns of behavior that are harmful to successful trading and then eliminate them. Now is the time to be critical of each decision. Then use the analysis to adjust your trading and investing skills. Use this analysis as a learning tool to improve your investing and trading. In my prior article titled Timing the Entry, I discussed how to develop an entry strategy. Let's return to the T.J. and CRZO, the stock he identified that might be a good buy. On December 14, T. J. entered an order at 9.5 to establish an initial position. With the good fundamentals for the company he believed this was a good place to open his initial entry. He chose to make this entry after the price rebounded from 9, so a move up is consistent with both the ascending triangle and horizontal channel chart formations. © 2006
Hans Wagner As a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market. Feel free to visit the site at http://www.tradingonlinemarkets.com/ CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
