A Trade A Day

Market action over the past week has indicated that it’s not an appropriate time to initiate new longs. Where this correction is going to end is difficult to say. What matters to me is how to play this movement and make money.

The first thing I’m going to do, like I said earlier, is not to put on anymore long positions until the pullback is complete.

The second piece of my strategy is to identify shorts. I’ve already begun some preliminary scanning this week, and I wanted to share some more of my ideas.

I always am scanning both long and short candidates, but usually only trade one side at a time for obvious reasons. In the case of today’s market I want to have long candidates in case the up trend resumes and shorts in case we see a new down trend.

But how do you know when it is ok to go short or long? When do you know the trend has really changed? Well, my answer is you never really know until the trend is established. By then alot of the good trades, where a lot of money could be made, have already passed you by.

Trading doesn’t come without risk. If you want reward you have to risk something. Looking at the pullback today, at a minimum I see a short term correction. This is enough for me to test the waters and start throwing money at shorts. I won’t be trading at full size, but I use the market to tell me that short trades are going to work. The only way I can do that is by putting some money at risk. The only risk acceptable to me is to trade at 25% or less of my full position.

So if I do catch a down move how am I going to make any money? Well, I scale in. I sell more and more as the stock moves lower untill I have all my risk management plan says I can sell. I never am fully positioned at the true beginning of moves, but I am able to get most of the run with an acceptable level of risk by scaling in.

Now let’s take a look at some stocks that I like.

Notice a pattern? Can you tell what my setup is. These leaders have all see strong down days and are now consolidating. I will start shorting the first break of their consolidation following their long red candles.

Good Luck! See you tomorrow!

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