Every time I make a trade I add and subtract my profits in my head. Whenever my stock goes up a dollar and rising, I feel smart, but when it goes down a point I feel like I made a mistake and need to exit ASAP to prevent further losses. I know that the number one rule of trading is to cut losses short and let winners run, but am I cutting my losses TOO short?...maybe if I would hold on to a loser for a little while longer it would be a winner. For example, I shorted rimm today at 85.20 and its up 2.60 at 87.80. I dont know if this is too much risk or not enough. Should I hold for another two points?, should I cover first thing tomorrow?, wait longer?... I have no idea. My question is, how do you know how much to risk? 1. Do you calculate risk/ reward by how long you're willing to hold on for? 2. Do you calculate r/r by the size of your account? 3. Do you calculate r/r by the # of shares you buy?
r/r = downside/upside potential and the third component would be how long your money is locked up in the trade ie: opportunity cost
Before each trade define a price that would "prove" to yourself you are wrong, and decide what $ amount you want to risk on that bet. For me, that's what dictates my share size, and nothing else. I have general rules about what % of my account I want to risk on each bet, given the strength of my convictions for taking the trade. TNG
Sounds like you didnt have any plan in place before deciding to take the trade. I really dont understand your approach to trading, your methods seem so arbitrary and unplanned. Can you explain why you took this trade, what potential it has and where your stop is?
Well, there's only two reasons why anyone would take a trade...because they think it will either go up or down. No one would trade if they had no idea where direction was. I took this trade because i thought RIMM was over-priced. CCI is over 120, by looking on the daily chart, the spinning tops on the 15th, 18th, and 19th show weakness, and then the big red candle forming a tweezer tops pattern on the 21st that signals a reversal. Today's candle ended as a hanging man, which is opposite of a hammer, giving yet another bearish signal. My stop is at 83.00 I forgot to add that ever sinse the up-gap on the 12th, volume has not increased yet the stock kept rising. If its not buyers pushing the stock up, then there's a factor that I'm missing, but that is a neutral signal telling me that this uptrend is about to end.
I'm confused, you are SHORT from 85.20 but your stop is 83.00? How is that possible? And I dont understand why todays close is bearish? The stock opened up strong, sold off and then closed near the high. I am not a swing trader but I dont think this sounds bearish.
Yes, but if you look at the $ gain, it went up .95 cents, but that was from yesterdays close. Today was only .50 cents in a 7 hr period...no too good i think. My stop is at 83.00 because thats my profit target.
Nate, Be careful in using candlesticks incorrectly. Spinning tops doesn't mean the stock is weak. It could show the current move ( uptrend) could be losing steam, but just because there are spinning tops ( or ANY candle pattern for that fact ) doesn't mean the stock is going to drop. Also, I'd be weary of a "hanging man". I'm looking at that chart and I see a good buying opportunity actually. That long lower shadow from today, is especially bullish. In fact, if I traded stocks at all I would probably buy RIMM around 88.21 and look to cover at 90.55 (resistance level). With a stop around 84.95. Just looking real quick it would appear that I am risking more then I can make. Therefore, I would pass on this trade and move on. There is never a shortage of signals. It's important to know when you are getting in, why you are getting in, where you want to get out, why you want to get out. This is stuff that should be determined BEFORE you enter a trade, not a couple hours afterward. My advice to you is to stop trying to fight the trend and stop trying to pick tops and bottoms. The trend is up. The likelihood it's going to go from uptrend, to neutral, to downtrend in a short period of time is not very likely. Its like driving a car. You don't go from 4th gear down to 1st gear in one motion when you are trying to stop. There are ways to use candlesticks with the trend, even though they are "reversal patterns", well most of them are. If you can develop a way to use your knowledge of candlesticks to trade WITH the trend, i think you will be must better off. Just remember, simplicity is the name of this game. I see people's charts and they have all sorts of oscillators, bollingers, pivots, etc. And it all looks very well and good, but you have to be careful of having information overload. I have no doubt that people that have all that stuff on their charts can and do make money, but once I got all that stuff off my screen and have 1 indicator it became clear. I think it might be best for you to go back to, if you did at all, paper trading for a while. Develop a checklist for yourself. Have things such as, why am I entering, Where is my stop, Where are my profit targets, etc... Fill it out BEFORE you execute a trade. And then follow it . Dont write down that your PT is at 90.25, but when price gets to 89.90 you get out. Plan your trade and trade your plan. Hope this helps.
"Be careful in using candlesticks incorrectly. Spinning tops doesn't mean the stock is weak. It could show the current move ( uptrend) could be losing steam, but just because there are spinning tops ( or ANY candle pattern for that fact ) doesn't mean the stock is going to drop. " - I agree, and I never to my knowledge have gone into a trade because of one candle. I like to mix candles, indicators and trend lines, to form a conclusion before I enter. I need much practice still. "In fact, if I traded stocks at all I would probably buy RIMM around 88.21 and look to cover at 90.55 (resistance level). With a stop around 84.95. Just looking real quick it would appear that I am risking more then I can make. Therefore, I would pass on this trade and move on" -- Your stops and PT's dont have to be set in stone do they?...you could buy at 88.21, sell at 89.21, and still have a cusion of 1.34 points before hitting your 90.55 resistance point. "My advice to you is to stop trying to fight the trend and stop trying to pick tops and bottoms. The trend is up. The likelihood it's going to go from uptrend, to neutral, to downtrend in a short period of time is not very likely." -- I wish I could, trust me. The problem is when the train has left the station, I feel like its too late to make $, and a reversal is just around the corner. This is why i wait for tops and bottoms, that way I can catch the new trend, and not get scared. Maybe I could get good at catching tops and bottoms and use that as my edge, sense I dont really have one. What do you think? "I think it might be best for you to go back to, if you did at all, paper trading for a while. " -- Tell me if you had this same problem so I know its not just me, but when I paper trade, I dont take myself as seriously as I do when I use real money. I know thats a problem, and i'm working on that.
I wish I had saw this before hand. Here is a 15 min chart of rimm that had penetrated its upper channel line. If I botherd to look at this chart, I would have bought at 86.70, sold at 87.80 making a nice 1.10. shit. lol