≈ It’s all about risk mitigation. ≈
Traders,
Successful swing trading is all about minimizing risk while maximizing reward. To accomplish the former, most traders use a Stop Loss. That’s what the “S” in the S.T.E.P. System is all about.
Think of a stop loss as an exit order that protects you if the stock misbehaves. It’s usually placed at a price that will signal your original trade thesis is wrong if reached. For bullish trades, we often put the stop below a support level. The logic is sound. If I buy a stock in an uptrend, then I’m betting the trend will continue. Breaking support invalidates said thesis. Thus, I exit.
The same thinking goes for a bearish trade; only the stop loss is placed above resistance. Of course, the presence of multiple support and resistance zones makes it tricky to know which one to use. This is where experience and best practices come into play. And it’s why we spend a good amount of time on the topic in our easy-to-follow S.T.E.P. System video series.
Once you have a well-placed stop, you can correctly calculate the potential risk per share to ensure it is low enough compared to the potential reward. For example, if I buy a stock at $50 and place my exit at $48, the risk per share is $2. Generally, we look for patterns with a reward to risk ratio of two to one. When risking $2, we like to have the chance to make $4.
#TeamTackle
Swing Trading Special Webinar
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Chart of the Day
Energy Stocks Surge
Tuesday’s feature of the oil breakout proved prescient. Crude has continued to ramp and is dragging energy stocks higher with it. The energy sector ETF (X.L.E.) was up nearly 4% yesterday with a powerful marubozu candle. Volume swelled past 38 million shares, officially registering an accumulation day. If this doesn’t qualify as a breakout trigger, then nothing does.
Video of the day
Trade Masters
Join Coach Greg, Cody, and Mark for another edition of Trade Masters.
Today’s line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Cash Flow Club 8:30 PM EST
Join Gino Poore as he hosts the weekly Cash Flow Club.
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