The Tools of Trade Management
- Rohit Musale, CFA
- 11 minutes ago
- 2 min read
Getting into a trade is not difficult.
Managing it is.
There should be tools on the chart or otherwise,
that can aid the trader in,
making rational trade management decisions.
The goal is to control risk.
Because,
that's the only thing that,
a swing or a positional trader has control over.
Thankfully there are tools,
that can be used with incredible effectiveness to manage a trade.
Here they are:
1) 8 EMA
Use the break of 8 EMA to book at least a portion of gains.
2) 21 EMA
Use the break of 21 EMA to get rid of a swing trade.
3) 50 SMA
Use the break of 50 SMA to get rid of a positional trade.
4) Hard Stop Loss
Use it to control risk.
5) Mental Stop Loss
Use it to receive an alert to either cut the position size or close the trade.
6) Technical Level
Use points inside the base to exit a position.
7) Technical Event
Use an event (like a falling window) to exit a position.
8) Fundamental Event
Use a sudden drop in Quarterly EPS Growth Rate to reduce position size or close the trade.
9) Comparative Event
Use the movement / worsening in RS Rating / Group Rank to close the trade.
10) Market Condition
Use the change in market condition status on Marketsmith to either close the trade or reduce position size.
11) Your Personal Situation
Any emergency in family or otherwise is a trigger to cut down on risk in the portfolio.
12) Your Mood
Do not stay in a trade simply because you feel good about it. Watch your emotions.
13) Big Event Day
Avoid big overnight positions on days like budget announcement.
14) Volatility
A sudden gap down opening in a fundamentally strong stock is a reason for concern.
15) Trailing Stop Loss
Sometimes, moving the SL inline with the price movement is better than closing a position outright.
The above is not an exhaustive list.
I am sure, there could be other ways to manage a trade.
The point is:
There are times when you cannot leave a trade alone.
You have to actively manage it.
Especially in weak market conditions.
Regards,
Rohit Musale, CFA
PS: To save tons of your learning time, enroll in my
PPS: Follow me on X: Rohit Musale, CFA