You can map out the best trades in the best sectors with the best stocks, but at the end of the day it all comes down to EXECUTIONS. Part of maintaining a winning trade is finding the proper trail that keeps you involved long enough to be a part of the momentum move, while not giving too much money back on pullbacks.
We mapped out how we would trail 1/4 of our AMZN position on the hourly 8 ema, because that's what the chart told us was holding. You can see, since it ignited (bottom arrow), how the 8 ema on the hourly chart has supported this rise every time a candle came close to the moving average. It jumped off today's huge gap up, pulled in, and found support right at the moving average. We were not shocked. Learning the proper trail is KEY in trading, and one of the many lessons we teach here.
Now the obvious pitfall to trailing is what? Not capitalizing on selling at the stock's highest price. But we will tell you from first hand experience, in the last 1,000 trades, maybe
.001% we sold at the actual ALL TIME HIGH. We can even give you the example below.
This is the one case, where we actually got stopped out at highs. With our swing trades, our stop is the low of the candle 2 days back after it is profitable. After we got in at $84, by using that stop strategy we were able to stay in a profitable swing trade for over 23 days! But trading is never this easy. Sure this one time we were able to sell $23 higher with $1 risk and sell at highs. The perfect, perfect storm of a profitable trade. But trading is never this easy, we are not here to buy the bottoms and sell the tops. We want to get into tight risk trade and be in for the meat of the move. Two days after we got out, this stock dropped $15 points, you don't want to sit through that pain. We took out profit and moved on. With the right trail, you will be in for the meat of the move, at some point see the high being put in (won't know it's the high until after you get stopped out) and then you will get stopped out for a profit. When you learn how to trail properly, you can control your greed since your plan is concrete. Once you can master the idea of the trail, you can master the markets.
The key takeaways we focus on with trailing a profitable position, are to look at the prior days low, as you look at Amzn, Swks, and in the next lesson Apple, each day it made a new higher low, confirming the stock was still on an uptrend. Stocks can be dirty and try to tail through the prior day’s low to get the weak money out before continuing higher. When we have a cushion in a position or have been in a profitable swing for 3+ days, we will look to put our stop below the low of 2 days prior.
You can see here, based on the day circled, we moved our stop up from $97 up to $100, and got stopped out the next day. We locked in a $16 gain on the remaining shares, and had confirmation the trend was now changing. Did we leave some profits on the table by not selling at $102.50? Of course, except when we got in our target to profit was only a messily $89, we as humans have a difficult time looking far into the future. By using a proper trailing technique, we can really maximize our winners.
I would like for you to go back to those 5 ludicrous stocks you selected and draw a line showing where you would have gotten stopped out if you were long for those run ups or short for those breakdowns, based off a stop at the low of the stock trading 2 days prior to it putting in it’s highs.
Do you have balls?
In the Chart Reading Group chat post 3 examples where trailing vs the prior day’s low would have got you out right before the stock reversed a major breakout.
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