Bought USU

I went over a lot of charts last night and I don't remember why but I wrote down USU's 6 month chart as something I liked. It's a pretty bad chart and I don't know why I would of saved it to look back on but I did. I set alerts for the intra day chart. They went off and I started looking at USU. I got in on the ride up to the resistance line and it pulled back and now it looks to have broken that resistance.

 

I got in at 6.87 and my stop is at 6.65 I noticed already that my new risk management method is going to help a lot in preventing weak stop outs. I've tailored both of these picks around a stop loss point and have adjusted my position size accordingly. I can tell on LOCM I would of been stopped out because I know I would of put a really tight stop under that support line. But I didn't I put it below the action which has kept me in for the time being. Although I don't know if now would be a good time to be actively trading the markets right now.

 

8.90 looks to be the new resistance line. Also, I'm still long LOCM

 

Risk Management- Revised

I made a post I think about a week ago about risk management and the formula that I like to use. I've been thinking about my trades and I've noticed that I get stopped out on almost every single one. Now, a lot of those stops have saved me from losing even more money but they've also cost me a lot of potential money. For example, getting stopped out just before the stock rallies which has happened to me quite a bit lately.

 

So, what I'm going to do is very simple. Keep my current formula, but set the stop at a point that's out of the way of the action but not so far away where to the point of it being pointless to trade. A point that clearly confirms and tells me, "hey, this trade is definitely wrong" instead of "hey, this trade could be wrong".

 

That point will be based on my current trading methods of using Support/Resistance levels on a Daily chart and incorporating them onto an Intra day. I'll see what the action is like on both charts and pin point a stop loss target that I think confirms that the trade is officially wrong. Depending on how far that stop is from the current price, I'll adjust my position size accordingly to my max risk per trade. If the stop is far away, I'll put on a smaller position, if it's closer to the current price, I'll put on a larger size relative to my risk. Basically it's what I've been doing now but really focusing on what a good stop point is instead of a generic automated stop I use for every single trade.

 

I feel this will help weed out those false stops in which I get stopped before a rally but still keep me relatively safe from potential disaster. Now that I have the plan and what to do, I need to put it into action so it becomes habit.

Risk Management

Risk management in my opinion is so absolutely crucial that I'd like to share with you how I determine my risk. Determining your risk before you trade is something a huge amount of traders/investors don't do. Why don't they do it? Because pre defining their risk tells them that they could lose and we all know people don't like losing. Well, if your trading to sustain yourself financially as I am doing now and plan on too in the future then you need to realize that a lot of your trades will be losers.

 

Now, what we need to do is figure out how much we'll be ok with losing on each of those trades instead of letting them run wild before we feel like puking before we finally sell them for a loss. Screw that noise. If I see a loser I get rid of it ASAP and preserve my capital so I can trade to see another day lol. Without capital my business is done for.

 

Onward and upward, this is how I determine how much to lose on any one trade.

 

For example, let's say we have $2,000. It's easier to do in my head with this amount. Ok, the first thing I do is look at how much capital I have and figure out 1% of that. 1% of 2,000 is 20. The reason I use 1% is because it's what I'm personally comfortable losing on any one trade and if I'm on an 3-5 or more trade losing streak losing 1% isn't that big of a deal.

 

So now we know how much we can lose on any one trade, 20. Now I figure out how much cash I can use. Depending on how volatile the stock is, I'll either pick a 4% stop or a 2% stop, you can use a 6% stop if you really like those crazy volatile stocks. How much cash can I use in order the stock to go against me 4% yet, still maintain a maximum of a $20 loss?

 

6% stop you can use a maximum of $350

4% stop you can use a maximum of $500

2% stop you can use a maximum of $1,000

 

Notice that as the percentage amount we risk declines, we use more cash. The more volatile a stock, the less cash we put in. This idea of risk management is one of many out there you can use but I like this one because no matter what stock I get in, I already know how much I'll lose. Once I know that, I'll start looking for stocks that have maximum potential for an upward run. That's when looking for 3:1 risk/reward comes into play now that we know how much we can lose, how much can we gain?