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Stock Trading Strategy

This strategy is best achieved by buying stocks that are breaking out of tight consolidations on an expansion in volume.  This type of move in a stock tells us that the previous area of indecision (consolidation or trading range) has been resolved to the upside and money is flowing into the stock (volume expansion).  Volume is the fuel that pushes the stock upward once it begins to move.  A lack of volume is a lack of fuel, and the move may be short-lived.  Be wary of breakout (or breakdown) moves on light volume as they are prone to failure.  Stocks highlighted in The Bandit Broadcast stock newsletter should remain on your trading list for the following 5 sessions, as an extra couple of days may be needed before they break out.  This is best achieved using an alerts tool such as Trade-Ideas Pro

Be in no hurry to put on trades.  Trades placed out of boredom lead to bad habits and poor results in the long run.  This leads to a loss of trading confidence, which is even more damaging than losing dollars! 

Over time (weeks, months, years), be absolutely sure to keep your down days and weeks as small as possible. Growing your account happens when you stay in winners while they run, and cut losers at the first sign of negativity.  Big winners are not for offsetting big losers.  Wealth comes from big winners, so keep the losers small.

Trading Strategy - What is Your Timeframe?

 

First of all, decide your timeframe for trading.  This is important because it not only determines position sizing, but also where to get out of a trade.  Stock picks from the Bandit Broadcast are selected because they are set up for initial moves which are ideal for day trading, as well as longer term moves which are ideal for swing trading.  Deciding which approach works for you will help you to determine which exit strategy fits your trading plan best.

Regardless of which timeframe you trade, the Bandit Broadcast picks are intended to be watched for 5 sessions.  This gives a stock an extra few days to trigger if it does not do so on the first trading day after being highlighted for new entry.  For stocks which trigger and then fail, it also allows a few extra days for them to re-trigger and you can still catch the move.

The following links will take you to the pages which will outline a specific Stock Trading Strategy to fit your timeframe.

 

 

Swing Trading Strategy

 

If your trade timeframe supports swing trading, here is a strategy outlined for you.  This may not be the exact way you wish to swing trade, but it is intended as a guide to help you determine a trading strategy that suits not only your timeframe, but also your personality as a trader.  If your timeframe is shorter, please see the day trading strategy page for more information.

Swing Trading Strategy:

 

When swing trading, your position size will usually be smaller than when day trading due to the fact that you are looking for a larger move.  Your stop loss orders should be placed wider than when day trading for this reason.  Naturally, your profit targets are farther away, so patience is a necessity.

Stocks often gap, so here are some guidelines for swing trading:

·         If a stock gaps 1-2%, enter 1/2 of the intended position size and monitor the stock for its behavior before adding.  If the gap holds, then add to the position.

·         If a stock gaps 2-3%, only enter 1/4 of the intended position size.

·         If a stock gaps over 3%, it may be best to pass on the trade entirely, as the risk/reward profile of the trade is no longer the same.

Here are a few rules of thumb to help determine exits when swing trading:

·         If the prior day's low is taken out on the breakout day (or high for shorts), exit the trade.

·         If a stock is unable to close in profitable territory on breakout day, exit at the close.

·         If a stock is able to close in profitable territory on its trigger day, take the stock home overnight.  Then place a stop-loss order below the recent consolidation OR 5% below the entry price on a closing basis, whichever is nearer.

·         If the market violates support or makes a 2% move in the opposite direction of the position, exit half of the position and leave a stop-loss in place for the remaining shares.

·         Once a trade is profitable by at least 10%, never give back more than half of the open profit.  This helps to avoid the frustration of letting winning trades turn into losing trades.

·         Once a trade is profitable by at least 5%, move the stop-loss order to breakeven on a closing basis.

·         Partial buys and sells can be very helpful.  If a stock breaks out in a sluggish fashion, consider entering a partial position.  If little follow-through is seen in a trade, lighten up on the position size.

·         Always monitor the health of the overall market, and the health of your positions.  When things aren't acting right, either lighten up or go to cash entirely to preserve capital.

These are some general guidelines for any trader with a swing trading strategy to determine exits that fit their timeframe, and are intended for educational purposes.  Each individual trader is responsible for their own exits and trading results.

 

 

Day Trading Strategy

 

This day trading strategy should be a good starting point for you.  This may not be the exact way you wish to day trade, but it is intended as a guide to help you determine a day trading strategy that suits not only your timeframe, but also your personality.  Trading in accordance to your personality will ultimately serve you best.  If you prefer a longer timeframe, please see the swing trading strategy page for more information.

Day Trading Strategy:

If you are a day trader, your position size is likely larger due to the fact you are looking for a smaller move with your short timeframe.  Keeping a tight stop is extremely important when trading larger size, as a day trading strategy gives stocks multiple opportunities to work.  For day trading, the strategy is rather simple:

Always keep your profit objective at least 3 times greater than what you are willing to risk.

Allow no more than a 1% move against you from your entry point.  Ideally, you are in the trade beyond the trend line and out of the trade below it.  You can always get back into the trade if the stock returns to the buy point.

If the futures (Nasdaq and S&P e-minis) make an intermediate lower high intraday (or higher low when trading the short side), exit half of your position.  This implies a weakening market and can make it tougher for open positions to continue working.

If your stock hits a new low for the day (long trades) or new high for the day if you are short, exit the position.  A day trade is intended for initial moves, so there is no purpose in widening stops to accommodate a stock moving in the wrong direction.  Get out if the stock breaks a low (or high if short) as you can reenter the trade if it triggers again.

Once momentum fades and buyers are thinning out, take your profit.  This can be done by carefully monitoring the intraday chart and the time & sales window for fading momentum.

If you have any additional questions, please see the FAQ page or contact us.

These guidelines should help any trader with a day trading strategy to determine exits that fit a day trading timeframe.  These are general guidelines given for the purpose of trading education, and each individual trader is responsible for their own exit and trading results.
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