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The Art of Trend Trading. Parness Michael
Читать онлайн.Название The Art of Trend Trading
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isbn 9781119185321
Автор произведения Parness Michael
Жанр Зарубежная образовательная литература
Издательство John Wiley & Sons Limited
The other factor is, as I stated, time. Typically, this trade is about a one- to two-hour trade, sometimes even less. It really depends on what time you enter. If you enter at 10:01 using a range break, which does happen more often than you'd guess, you will likely want to exit before noon, at least some of the position. And, once you take some of the position off, you'll want to reset your stop to trail by a tighter stop; let's say for this example maybe you move your stop loss to $0.50. It sounds arbitrary mainly because it is somewhat so. As you start to see what stocks trade in what ranges and at what velocity and volatility, you'll begin to get a feel for where your stops should be.
You can't possibly use a $0.50 stop on Google (GOOGL). I mean, you can, but it's likely you'll get stopped out the majority of the time. On a stock that is over $500 that trades in a big range (GOOGL often trades in a $5+ range) you'll need your stops to be at least $2 to $3 and maybe even $5 or $6.
You can see a fade in the opposite direction of the Facebook (FB) chart in Figure 3.2 using GOOGL as an example. The fade shown in Figure 3.2 works like a charm, but you'd want to set a realistic stop loss on it – as I stated, anywhere from $2 to $6 is fine by me.
Figure 3.2 Chart of Google (GOOGL)
Conversely, a stock like Bank of America (BAC), you'd be silly to use a $0.50 or $0.71 stop; the stock rarely trades with more than a $0.20 to $0.30 cent range, and often it's $0.10 to $0.15 or less! So, you're just wasting your time setting that stop on an intraday trade. On a swing trade lasting days, or weeks, or months, and so on that's a different story, but on a pure day trade, you need to know and learn how wide the typical ranges are for the stocks you are looking to trade.
There are tons of ways to play breakouts via technical analysis. I'm going to just cover a few because I think going over 250 chart patterns with you is a different book. I'm not sure technical analysis, or TA, has many animal spirits, though I suppose it's like the horse in that it can provide stability and calm, because when a pattern sets up right and it's clear as day, it takes a lot of the thinking out of the equation.
Some of the simple patterns with which to trade breakouts and breakdowns off of are shown in Figure 3.3.
Figure 3.3 FB Blue Skies Breakout
Once the stock clears its all-time high at the time over $45 area it just za-zooms like it was shot out of a cannon. This is called a blue skies breakout, a stock that breaks its all-time high. It's an easy trade setup, and one that has worked extremely well over the years a countless number of times for us!
One of the simplest and absolutely most-effective trades can be used as both a day trade and/or a swing trade. It's what I call a “thing of beauty” in terms of when it sets up and works because the moves can be so dramatic and so fast that you can make a huge score with very little downside risk if you use proper money management as discussed in Chapter 1.
One of the beautiful things about trading is oftentimes that simple is best…and this is mad simple!
We scan through market data you can easily get through a wide variety of places. Yahoo.com Finance is one, but you can Google “52-week highs” or “all-time stock highs” and get a whole bunch of free data for that day's trading, or recent trading.
Trading a stock based on a 52-week high or based on a 52-week low is as simple as that. We are seeking stocks that hit new 52-week lows or highs. If they break out above that 52-week high level, they are an automatic long. If they break down below that 52-week low, they are an automatic short.
This is a very high percentage play —very. I'd guesstimate it works more than 75 to 80 percent of the time, it's that accurate and it gives you potentially that two- or three-to-one risk/reward ratio because the moves can be so powerful, and your stop loss is well defined; you're just using a standard stop loss depending on what the stock's typical daily range is. If it drops below that level and you're long, then you're out. If it rallies above that level and you're short, then you're out.
When we go over options this is one trend you can usually use options (calls or puts) on and make yourself a really nice risk/reward while defining your maximum risk as the price of the option. But, I'll go over that in more detail later. For now, suffice to say trading 52-week high or low breakouts is a very sweet and usually rewarding trade.
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