How To Manage Key Technical Breaks Against Your Trades
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This video shows you examples of how to manage key technical breaks against your trades.
An example that we've seen recently has been with the oil markets where even though the trade has been going on for such a long time, we have been starting to see some violent squeeze moves in the market that have been getting a little bit more violent because of that very oversubscribed, or let's say extend the trades that we've had for a while.
So the concerns we have with these levels isn't to do with the bias in that tragedy, it has more to do with the potential of seeing a squeezed developing in these markets, if we do see these levels folding.
So there's really two ways that you can look to manage this trade, you can see by looking at that trade idea that we have three separate targets for this move, so you can either take one position with your stop like we said at that 86 or 87 40 area and then simply allow the trade to breathe up and down, to ebb and flow , knowing that the stock is safely anchored at a place. let's just go back to that. Knowing that the stock is safely anchored above you're at a place where if we reach there, that'll seriously bring doubt in our minds about that medium term direction, if these levels get taken out.
Alternatively if you have more time in front of the screen to actively manage the trade, the way that you guys know I prefer to do it is not to take just one position, so not to just like one entry around that entry area, but two to split my risk into different clips, to split the entries into smaller position sizes and then to take multiple entries around that key area that we like.
What I like to do then is I like to scale out of the trade to reduce my risk, if I do see that key technical levels has been taken out, if key technical levels are broken through and more importantly followed through as well, that's normally a reason for me to just simply scale out of the risk to take some risk off the table.
So how that would look like is let's say that I've taken three clips somewhere around this oval area, let's say I took one trade over there, one trade over there and one trade over there, obviously split to not overexpose my risk, so let's say I'm risking a total of 1%, let's say on risking a third of 1% total at that level around that area, now what we made with those levels with that 85, 50 and 86, what we mean with potential trade risks is that seeing that this is such a key level of support, I don't really want to see the markets closing above this level, and then following through of that close.
So what that would look like is if I see the market's breaking above 85 50, we obviously going to expect a move to the upside.
So let's say we see a move to the upside like this and we close above this level. So it has to be on a closing basis if we see it close above pulling back and then following through with that potential move, so basically creating a higher high a trending move to the upside, if we see that follow through happening, normally when I see that that is a trigger for me to remove one of those clips from the trade, so where I had maybe three positions running or four positions running around that level, if I see that level being a broken through and then follow through, I will just remove one clip from the tray.
And that way I'm reducing my risk as the market has given me some warning signals for that potential trade, and I'll do the same thing we head above 86 so if we see the market's falling through once again breaking above that level closing above it, possibly pulling back and then following through with that move again for creating a new higher high in a training fashion, then that follow through is once again a reason for me to just take another clip off the table.
I'll do the exact same thing if we get up to 86, 50 or 86 40 rather since that is such an important level as well I'll do the exact same thing. So if we do see that at 86 and 40 as well, and we follow through once again and I remove that last clip it means that I've basically scaled out and removed my risk way before we head up to that level.
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