Traders must strive to learn something every day. Today’s lesson came after I broke a few rules trading SHOP and will focus on how to manage a trade.
We get our ideas from the daily chart and SHOP had a few things working for it. SHOP was on my watchlist as an earnings breakout trade. The stock broke over the range and into $100 on news of strong earnings. I had a picture perfect entry on this stock. If SHOP was able to hold this level of support at $101.50, then I knew it had the potential to run. It had a history of making runs, it had a beautiful range that moves every day, sometimes $6 to $10, and I had a low risk entry.
As the stock was holding this first level and came out of range, I longed this stock 600 shares right at $102.00. The stock popped up to $103.70, at which point I sold off a few hundred shares. I was actually up $1200 but all of a sudden, the stock broke back underneath the VWAP. I knew this was weird since SHOP should have held above this level. When a stock breaks above the VWAP you want to see it run towards its high of day. It came back, broke underneath my buy price and broke under the 9 EMA.
I ended up selling this position near lows and took what was a huge gain and turned it into a loss. When you turn your winners into losers, it could really ruin your day making it hard to progress in trading.
The big lesson is to always aggressively manage your risk. We’re not just traders looking for entries. But more importantly once we’re in the trade, we must focus on how we manage the position. We have to keep rising up our stop losses. But the trade needs to at least be a break even trade. We should be selling it once the stock comes back to our buy price if we’re up that much. You don’t want to limit your downside. If you make a mistake like this every day, before you know it by the end of the year your seeing $100,000 difference in your total P&L from what you made and what you gave back.
If you’re not sure of the setups and price patterns that we’re talking about you can learn them all here at our Bulls Bootcamp. It's an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at email@example.com today!