Today's Quote: “Practice is the best of all instructors." - Publilius Syrus.

In the last issue we discussed the benchmark of trade management, all or nothing. The goal now is to see if we can beat that level. To begin this discussion we need to remember one of the basics that was brought up in one of the first discussions about targets and trade management. That is the concept that the more you want a stock to run, the more room you need to give it.

We start off with the basic concept that we will manage a trade on the timeframe on which it was taken. So a core trade taken on a weekly chart with a VCM Buy Setup should be managed on the weekly chart. A swing trade taken on a daily chart with a VCM Break Out Play should be managed on the daily chart. When we say to manage on a certain chart, we mean that we will be using the bars and/or moving averages on that chart to set the new stops.

There are two ways to use the bars. We can use the highs and lows of the bars. This is known as trailing ‘bar by bar.’ We can also use the ‘pivots’ formed by the bars. Pivots can get a little complicated as there are different levels of strength a pivot can have. You could choose any level to manage you trades. If you are unfamiliar with pivots, think of a stock that is falling. Every bar forms a lower low. All of a sudden the bars start moving up. When a bar closes on each side of the lowest low with a higher low on each side (a mini ‘v’ bottom) that is pivot forming. With only one higher low on each side it makes for a weak pivot, but that could be used to raise a stop. There are also stronger forms of pivots. All the reverse is true for ‘lower high’ pivots to lower a stop on a short play. Pivots are much more solid areas of support and resistance than highs and lows of bars. We will discuss this concept more next week.