Swing Trading Speculative Runs
Most of the time
Retail Traders are focused on finding stocks to trade but spend scant time on
assessing risk, proper stop loss placement, trailing profit stops, and
determining when to exit the trade especially as a stock goes ballistic.
Since we are in the
final stages of a Great Bull Market that has been underway since March of 2009,
it is imperative that all Retail Traders learn to exit a speculative run at the
correct time to insure the highs profits possible.
Many traders have
been bludgeoned by the slower paced market activity over the past few years and
so they have abandoned the normal Swing Style Trade rules for Stocks, Exchange-Traded Funds (ETFs), and Option premium trading.
Instead of holding
for a nice 3-20 point gain, the hesitant Retail Trader who has taken plenty of
losses over the years takes 10 cents or 20 cents and believes that is the best
they can do. However, we are now in the speculative market of an aging Bull.
There are hundreds of thousands of new investors flocking to the Stock Market
to buy stocks because they believe the Bull Market is just starting, pulling
pennies instead of dollars which is not the right strategy to use.
This is the time when
Retail Traders can make significantly higher profits, and learn how to earn the
kind of income most only dream about. Understanding how to exit a Stock
Trade at the correct technical level requires going back to the foundation
rules of expert Swing Trading.
Swing Trading can be
for Stocks or Options, and both employ the same technical setups and patterns.
See chart #1 example
below which is a pricey stock that many Retail Traders would choose to trade as
an Option.
The compression entry
pattern with the “buy into strength” entry signal, and order type positioned
either a stock buy or option premium trade buy to open the order. All
indicators confirmed the presence of Dark Pools and Professional Traders, as
well as the predatory and opportunist Deep Pockets at that time.
Then entry triggered
as the stock moved into the preset order for “buy into strength” and set the
trade up for a very low risk entry with a high profit potential. The weekly
chart view is used to identify resistance areas where the technically
proficient Professional Traders would start taking profits. Based on those
levels target gain potential is set, and sell levels are determined before the
stock moves which is the starting point of how to exit a Stock Trade at the
correct technical level. See chart example #2 below.
There is a bottom
completion level, which the stock has moved above and sustained around $170.
This offers support for an initial stop loss. The next resistance is a Monthly
High and due to the momentum of the market, this is calculated as a moderate
resistance at $196-$200 and thus the appropriate trailing profit stop OR exit
can be made as the stock moves into that area.
The next level is at
$206-$210. This is a Yearly High and is calculated based on the momentum in the
market as moderately strong. The final resistance is the final target gain.
After that the stock is at new All-Time Highs in an extreme speculative mode.
Therefore calculations for exiting the trade must include the risk factors of
several Market Participant Groups taking profits faster.
At new highs High
Frequency Trader risk of gap downs or sudden reversal patterns increases
exponentially, and the exit or hold analysis needs to factor this into the
equation of risk levels.
Summary
This stock behaved
precisely as technical resistance levels indicated, and as the stock Quantity
and Accumulation/Distribution/Rotation Indicators confirmed. When trading a
Swing Style momentum or velocity speculative run, it is critical to evaluate
each level of resistance in relation to how the trend has developed. This
allows the Retail Trader to plan the exit for maximum profitability.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts.com chart, courtesy of StockCharts.com
Instructor & Developer of TechniTrader Stock & Option Courses
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