Today's Quote: “Anyone who isn't confused really doesn't understand the situation." - Edward Roscoe Murrow.

So where do we start when discussing trade management? Well let’s define the goals so we know where we are heading. There are two goals in trade management. First we want our position to run as far as it possibly can. We want to get as much as possible or all of the ‘maximum move’. The second goal is to protect current profits. We want to make sure that if the trade doesn’t go any further than it is right now, we lock in as much of the gain as possible.

Maybe you can see where the problem lies. These two goals are opposed to each other. If stocks in uptrends went up one penny every ten minutes and never pulled back a penny, our job would be real easy. Just keep that one penny trail stop in place. Unfortunately, that is not how it works. Stocks rally, fall short of targets, and then pull back hard. Then sometimes they run right through the target, and sometimes the just die off. That makes management a lot tougher. You have probably noticed that stocks definitely have the ability to see your trading screen. When you sell them to lock in profits, they feel perfectly free to run and exceed any target you dreamed of. Likewise when you hold for the big move, they die off and you give back the decent profit you have. How do they do that?

To make matters worse, there is no perfect answer. Different stocks and different strategies will have differing styles of management. So there is no one ‘magic’ system to manage. We will be discussing all of these issues in tomorrow's letter.