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Originally Posted by lewdog
I didn't have the energy to expand on this yesterday but my buy orders for breakouts are different than most people, as most write limit buy orders.
For possible breakout stocks that I listed, I am looking to buy in at a price ABOVE it's current market value. I do not purchase unless the stock confirms continued movement upward. So I write Buy stop market orders, meaning the stock has to go above my stop market order before I buy shares. This ones I posted this week are all pretty close to their breakout price, but many times shares are $1-2 away from a breakout price so they must continue decent upward momentum before I'll buy.
Once purchased, I monitor the stock for continued appropriate movement. Sometimes after purchasing a stock on breakout it will squat quickly, this isn't a good sign. Sometimes when I see this I sell the stock within the first few hours after purchasing or days after purchasing because it didn't confirm that the breakout up was real.
With swing trading you are generally looking for 3-10% gains within days to weeks. The stocks previous volatility will determine if it falls on the low or high side of that range. One of my rules is once a stock reaches 10% gains I sell at least 50% of my position. If the chart shows that a bullish pattern may continue, I let the remaining 25-50% of the position run but raise my stop loss to at least break even (limit your chance of losing trades!)
Hope that helps.
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I like this approach a lot. At first glance I thought it seemed way too safe and concentrated too much on safety and risk aversion. But after digesting it, it's the perfect blend of risk/safety. Your risk lies in missing out on potential gains in the SP, but the safety blanket is watching the trends to see if the momentum is real. I'll try and see how to implement that, hopefully later on this week.
If anything, I think a 10% stop loss is something I'll have to think real real hard about ever using again.