I received a question for Tom that many of us have stuggled at some point in our trading careers:
I think I have about 90% of the same stocks on my watchlist (and like you I
spend a TON of time on them), however, my challenge is always the entry/exit!
What tips can you give on the best way to approach this? With high beta stocks I am always nervous of a nasty reversal…we’ve seen a few lately.
There are 4 elements you must master:
- Idenifying support and resistance. If you are trading in the middle of the range, you will be more suseptible to what seem to be reversals, but are actually just noise in between a trading range. Do not enter if your stock has moved more than 5 percent above support or the breakout point.
- Identifying volume patterns. If you buy a dip on high volume, there’s a higher probability of getting caught in the midst of a reversal. Same goes for low volume breakouts.
- Set appropriate stops, based on support, resistance and percentage of your trading portfolio. Even if you take the appropriate cautions, you can still get reversed. It shouldn’t hurt when you do.
- Do not trade scared. Trust your analysis and risk parameters.
It has taken me time to master these four elements to trading, and at times I still fall into my old habits. The key is to constantly assess both the technical and mental aspects of your game.