Managing Trades That Don't Go Your Way

 | Oct 27, 2013 | 7:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

aapl

,

sina

Let's get real about trading. While it's great when a trade setup plays out beautifully, not all of them will -- and when that happens, you have to manage those trades. In particular, you most certainly need to be willing to ditch the ones that aren't playing out as planned or expected. When it comes to winners, of course, you need to hang on and either wait for your target to be met or to use a trailing stop as a means of letting the market tell you when to exit. You could also employ a combination of the two -- that is, exiting partial positions at a target and trailing a stop on the balance.

My favorite setup uses what I call a Fibonacci price cluster. This is when we can identify a minimum of three Fibonacci price relationships that come together within a relatively tight range. Many times I will find up to 10 such price relationships. Still, when we use these, sometimes we'll hit a home run and other times we'll strike out entirely. Not all of these setups will make you money. But the risk-reward parameters are pretty healthy on these -- so, if you manage them correctly overall, you should end up a winner.

For example, the risk on one of my Apple (AAPL) setups was around $10 after the stock tested a key price support and timing decision on Sept. 16, and eventually triggered an entry. So far, the rally from the price cluster zone has been around $86. The stock could continue further, but I typically don't recommend sitting through earnings. This is an example of a trade setup that has played out to at least the minimum target.

Apple (AAPL) -- Daily
Source: Dynamic Trader

In some other setups -- as in Sina (SINA), for example -- the setup won't play out as I would have liked it to do. If you had taken an entry against Sina's recent lows and placed your stop below that low, you would have already been out of the position with a small loss. If you've given the trade room below the lower price cluster decision, there is still a chance that it will play out -- but, if you're in Sina, please make sure you have your stops below that zone.

Sina (SINA) -- Daily
Source: Dynamic Trader

Again, we are going to have losing trades sometimes. This is part of the business. In fact, small losses are a part of a good trading plan. Just don't let them turn into bigger ones! Just remember: If the market starts to shift gears and goes back into a corrective mode, we need to shift with it.

Columnist Conversations

Vertical Spreads drive heavy call volume in Occidental Petroleum. 16K Jan 115-125 call spreads were crossed ea...
Stocks liked the pre-open but since have gone to even. The Ukraine issues are just putting the market on hold...
Kass:
Hearing Prime Minister Cameron speaking at 2:45 London time on heightened terror threat.
Kass:
Via Zero Hedge: U.K. Terror Threat Level Raised to Severe From Substantial       *DECISIO...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.