Day Trading Trade Management

Discussion in 'Trading' started by stock_punter, Oct 27, 2001.

  1. For the day traders among us here, can you please describe your

    (1) entry technique,

    (2) exit technique for losers, and

    (3) exit technique for winners ?

    I am finding that I am having problems in all three of these areas. I often times enter at the wrong time and almost immediately start looking to scratch the trade. When looking to exit a losers, I sometimes wait too long to exit the trade and end up taking a bigger loss. When I have the occasional winner, I take my profits too early or too late.

    I thought perhaps I might be able to glimmer some new ideas on these three areas from you.

    Thanks for your time in advance.

    -- Punter
  2. Magna

    Magna Administrator


    You're asking an impossible question that would take volumes and volumes to answer -- in fact, many good books have been written on the subjects (entries, exits, etc.) that you've mentioned. You might try reading and re-reading books by Tony Oz, Alexander Elder, Van K. Tharp, Jack Schwager, Jea Yu, Ken Wolff, and on and on (everybody has their favorite authors and books). But to answer your questions in a couple of sentences? C'mon.
  3. Thanks M for your reply.

    Yes, it is an open ended question indeed ... but if your trading methodology takes volumes to explain, might it be too complicated?

    Floor traders make a living with nothing more than their eyes and ears ... surely there must be techniques that are simple yet effective that off-floor traders can use as well?

    -- Punter
  4. Rigel


    Exit techniques on loosers - What has worked best for me is to look at the price action over the last few days. I can see two kinds. Definite extensions where the price will go up a large amount and retracements which I think of as "wobbles" where the price will go down a little bit and then continue upwards. When I look at the stock I might see that in upward moves it often retraces 30 cents so I will set my stop 35 cents below my purchase price. If it retraces the 35 cents I figure the trend has reversed so I get out.
    Exit techniques on winners - Trailing stops work pretty well. For instance, if my stop loss is 35 cents below my purchase price, and the price moves up a dime, I'll raise my stop to 25 cents below what I paid for it. If the price moves up another dime, then I'll raise my stop price to 15 cents below what I paid for it and so on. If the price has risen 40-50 cents above what I paid for it I might then sell 1/2 my position and narrow my trailing stop to 20 cents on the remaining position.
    As for entries, to be candid, in the short timeframe of daytrading I am coming to the conclusion that it's a crapshoot, totally random. I think that the price movements during the day are just the random ripples of huge numbers of large investors buying and selling at different times over larger timeframes.
    This might make an interesting topic in itself.
    For instance. Think of a single stock, like MSFT.
    In a single day there might be 150 large investors that give their brokers or the market makers orders to buy MSFT and 85 large investors that give their brokers orders to sell MSFT. Each order is a minimum of 10,000 shares. When the broker or MM has the order they will usually not just execute it immediately but may put it through a few hundred shares at a time over a day or two so as not to cause the price to rise or fall dramatically or alert others to their intentions. So you have several dozen market makers, brokers, specialists, or whatever executing several hundred large buy and sell orders over time periods ranging from 1/2 hour to 2 days. The orders cause the price of the stock to rise and fall randomly because the orders spread out and entered over different timeframes. Many orders, many participants, none of which are coordinated.
    In order to be able to know that the price is going up you must be able to know the intentions of the buyers and sellers. But if their intentions are to buy stock and keep it for several months, or unload a stock that they have owned for several months, then their intentions will not show up in the price movement minute-to minute. Those movements minute to minute, even hour to hour are just random interactions of many different decisions that may have been made days ago.
  5. Magna

    Magna Administrator


    but if your trading methodology takes volumes to explain, might it be too complicated?

    Good question. But there's a reason why various professional traders needed to fill books, and it wasn't always just to cut down a few more trees. Anyone who can explain their setup strategies (for bull markets, bear markets, trending markets, non-trending markets), entrance trigger strategies (gap-up days, gap-down days, narrow-range days, wide-range days, news days), scaling in/scaling out strategies, position sizing strategies, money management strategies, exit strategies (again, for various markets, scalping, intraday swingtrading, multi-day swingtrading, position trading) -- if anyone can do that in a few sentences then I suggest you run for the hills, 'cause they don't know what the hell they are talking about.:) Anyway, good luck to you.
  6. tntneo

    tntneo Moderator

    Even a simple trading plan takes several pages (if you really explain on paper what you are supposed to do in all conditions).
    It does not the entry and exit fundamental concepts are complex, they can be very simple. But indeed, you should imo declare in which conditions they are valid etc..
    A real trading plan is something you could give to someone and let them do your trading. That's what I do with software and robots, I could do it with my wife (there is an idea like that in a recent thread on ET) or whoever is disciplined enough to follow the plan.

    I do understand your question punter, though. But with simple answers it is what is not mentioned which can kill you. And obviously someone with a working trading won't give it to you just because you ask. only vague ideas will come out. (not totally true, a few on this board did go into details with their trading plan, like P2's GNP and others).

    maybe this thread will go toward some details we can discuss (scaling or account volatility and risk etc..). but several aspects were covered already in this forum. maybe the question is too opened. I don't know. At least I expressed my objection to it. Probably others want to help.

  7. First, you need a plan or system to use. You must believe in it and don't stray from it. One trading system you can paper trade to start is making a list of the previous days strongest or weakest stocks. These are stocks that made new hi's or lo's in last hour of trading and closed at or within a 1/4 or 1/2 of their hi or lo on the day course you would like to see better than avg. daily volume for the stock. It is also smart to pick stocks in a industry group or sector that meets the same criteria . So for example as I look at my quotron screen I see strong groups .....oils...oil services....brokers.....some retailers...biotechs...weak groups are high tech ......drugs....airlines...some internet stocks for monday morning if you were leaning towards a bullish view or bearish view of market direction that day you would look to buy the strong stocks from friday on any gap down or weak opening and short the weak stocks on a up opening .As for entry point I would automatically fade the opening price of the stock or watch a 1 or 5 minute chart to time a entry point after stock opens for trading. As for exit could again use 1 or 5 min. chart (you are using overbought or oversold indicators with your charts).I like to use stoc. ....70 or more on indicator overbought and below 20 oversold. Also breaking of the 5 or 8 period moving avg. as exit could be used .Using moving avg. might keep you in a winner longer but I tend to set price targets depending on stock and how market trend is going. So for a stock like MSFT ,I might target 3/8-3/4 of a point or BRCM would be 3/4-1 1/4 of a point is just one way to daytrade....its a good system ......and used by many traders . Of course for any system to make you money you must trade it consistently and with discipline....AND DISCIPLINE IS THE KEY. IF YOU DON'T FOLLOW YOUR RULES YOU WONT HAVE A CHANCE TO BECOME A SUCCESSFUL TRADER.

    Good Luck
  8. BSAM


    stock punter:

    Sounds like you're experiencing a few frustrations. Well, join the club! Here's a few suggestions that you may find helpful:

    1. Study 5 minute charts till you are "blue in the face."

    2. Understand how stocks react to a few simple indicators. I believe tntneo's ideas about keeping things simple is good advice.

    3. Once you truly begin to grasp how certain stocks react to certain indicators, take action at the appropriate time.

    4. (This is perhaps the most important one.) KNOW where your stop will be. I suspect you are probably getting stopped out at times when your entry wasn't really that bad, then perhaps the stock turns back in your original direction. Remember, you can always get back in the trade in the direction you thought was correct. But, of course you can't KNOW if a stock will turn back in your direction, thus you should stop out too soon RATHER than after something catastrophic occurs.

    There's a lot of good advice given out here on ET. We have some people here who, very obviously, can help traders along in the right direction.

    Thanks to all for your time. Stock punter, hope this helps you or someone.