Monday, September 17, 2007

Pyramiding a swing position

The list of stocks I select as "swingtrades", I have it in my notes that should the stock move in the direction we are predicting, that we would add a maximum of 3 more purchases/short sells to the existing position. From personal experience, I've found when I exceed the 4th purchase/short sell of an existing swingtrade, my objectivity becomes tainted.

The usual method of turning a one time purchase/short sell into a high dollar gain is to make sure the first position is for slightly more than number of shares than the potential next three. For example, if i'm looking to swingtrade 500 shares. The first position would be 200 shares. If the trade goes in my favor, then anywhere from sixty cents to a set % from this trade, I'll make my next 100 share trade. In this manner, suppose if the trade starts to reverse after the 2nd position is executed, it will be easier to exit at a breakeven trade versus watching something go from a net profit to potentially a net loss.

Even if I use odd number share positions to execute swingtrades, such as partial sells or cover shorts, I must stick to a maximum of four buys or four short sells of the same stock.

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