January 1, 2008
Arbitrary But Consistent (ABC) Stop Management
I thought I’d use Thursday’s box pick to explain my Arbitrary But Consistent (ABC) Stop Management method. This is the method I am applying to all the ideas the box came up with in December to see how it performed. There’s nothing rigorous or scientific about it — I’m too dumb and lazy to come up with something like that (plus I suspect there is no ideal method).
Short IWO below 85.94
Protective Stop above 87.18
Initial Risk is ~1.24 (1.44%)
Initial Risk Covered at 84.70 (if it trades to this level, move the stop to breakeven)
Target: 76.43 to 77.45
You can see that IWO covered the initial risk on the same day the trade was entered — Thursday. Once the 1x Initial Risk level is hit, I suggest moving the protective stop to breakeven. On Friday IWO basically went nowhere, but at least it didn’t hit the tightened stop. The following Monday IWO gapped down and traded down to the 2x Initial Risk level. Now that the 2x level has been hit, the stop will begin trailing above the high of down bars only — a down bar is a bar that makes an equal or lower high and a lower low than the previous bar.
So when trading resumes on Wednesday morning, the stop will be above 84.23 and will continue to trail assuming the next bar is a down bar and the position isn’t stopped out. I know this is hard to understand if you haven’t traded before (and maybe even if you have), so please leave a comment if you’re confused or have any questions.
January 1st, 2008 at 3:20 pm
Chairman,
How about a subscription site for a screening of the best Dummy candidates that trade with a trending day? We probably all understand the dummy method but I assume it was the stock selection and screening that made it work for you.
Eric
Happy new year!
January 1st, 2008 at 3:26 pm
Eric: I could do that, but for any real time thing I’d charge hundreds a month, not twenty bucks. It’s a lot of work for a teeny tiny market. (There aren’t that many full-time day traders out there and the few that exist usually take care of themselves.)
January 1st, 2008 at 3:37 pm
I suppose if the watchlist took that much time it would be more profitable for you to just start day trading again.
January 1st, 2008 at 6:47 pm
I have my stop to break-even on this trade. I have never been good at trailing past b/e when daytrading. I like your plan though. I will have another drink and mull it over. Happy New Year!!
January 1st, 2008 at 6:47 pm
and Thank you!
January 1st, 2008 at 9:26 pm
Based on web traffic, there seems to be a huge demand for hyperactive trading ideas, as in day trading, options trading and swing trading holding for only a few days.
How much response did you get for the “black box” ideas vs. the longer-term ideas that you posted “donate and get” for earlier in 2007?
January 1st, 2008 at 9:53 pm
Bill: So far I’ve gotten about 20 times as many people interested in these swing trading ideas as I had willing to make a donation for long-term investing ideas, but even at 20x it’s still a very small number in the big picture. (Remember this blog only gets a couple thousand visitors a day.) Once it goes to $19.95 a month, I expect around 1 in 10 free trialers will pay up… we’ll see, maybe I’m too optimistic.
January 2nd, 2008 at 3:13 am
Re stops… daily bars dictate stops? If so, some confusion re using 15? min demo chart.
January 2nd, 2008 at 7:32 am
stan: I used the 15-min chart to make the entry, initial protective stop, 1x and 2x levels easy to see and understand. Maybe I should post another chart of the daily beneath it?
January 2nd, 2008 at 7:36 am
My interest is in taking positions for a day - I’m usually in cash at the end of a day - except for my very long-term holdings and options. Since you began I am two for two in one day trades. Just to give you some feedback. I am not, however a day-trader - I generally, make 3 to 4 round trips a day (6-8 trades)
Thanks, paul
January 2nd, 2008 at 7:49 am
paul: I appreciate your feedback and think everyone can use the box ideas in his own way without following any of the money mgmt advice or even the exact stocks … several people told me they shorted IWM instead of IWO on Thursday — no one appears to be following what I say strictly, which is a good thing because I don’t consider this a “trading system,” just ideas to think about.