Trading for Dummies, Q&A #91

Altair Nanotechnologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, December 2?
2) Is the trend up or down? Would you be looking to get long or short this stock?
3) Where would you get long/short this stock on Tuesday, December 2?
4) Where would you put the initial protective stop?
5) When would you stop trading for the day?
6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.
2) Up. You'd be looking long.
3) Long at 2.55 on a buy stop above the 11:00 inside bar.
4) Initial Protective Stop: 2.39. (max. 6.27%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) Stopped out on the 3:30 bar.

..........

The sentiment was positive in the morning so I was looking long. A burst of selling into 2:30 reversed the broad market (which ALTI unfortunately didn't ride out).

In any event, ALTI gave a nice spot to get long though the initial risk was a little much at 6.27%. This meant I could only buy a smallish 3000 share position.

Once my initial risk was covered, I cut my risk in half by moving the stop up to $2.47. This turned out to be a good move since the stock broke down hard in the final hour and I got stopped out for a small loss... a loss only half as large as I expected to take when I put on the position.

You don't have to be right very often if you let your profits run. I recently heard a "guru" say something along the lines of 'we only have to be right 60 to 70 percent of the time to make money if we cut our losses short,' which made me chuckle. She's got it almost perfectly backwards: you're going to have to be right 60 to 70 percent of the time if you cut your profits short.

Make sure that you understand that letting your profits run is as important as cutting your losses short. IF you are trying to pick 2 points out of the market while risking 2 points THEN your trading life is going to be a horrible grind.

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Screen capture of my intraday Watch List:

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