Risk Management for Swing Trading Stocks?

short&naked · May 13, 2009

I find that single stocks can provide great trends even when the general market isn't trending at all. However, the short open hours can create huge gaps at open and make risk management with stops almost impossible.

Is there any way to limit one's exposure (like in options) without incurring time risk (theta burn)?

NYC212 · May 14, 2009

Quote from short&naked:

I find that single stocks can provide great trends even when the general market isn't trending at all. However, the short open hours can create huge gaps at open and make risk management with stops almost impossible.

Is there any way to limit one's exposure (like in options) without incurring time risk (theta burn)?

you could always pair trade instead of being naked one sided.

long PFE
short MRK

etc etc

Rabbitone · May 15, 2009

Quote from short&naked:

I find that single stocks can provide great trends even when the general market isn't trending at all. However, the short open hours can create huge gaps at open and make risk management with stops almost impossible.

Is there any way to limit one's exposure (like in options) without incurring time risk (theta burn)?

I have automated swing trading of stocks (for the last 10 years). Stops are not impossible to learn how to build for swing trading stocks. But, understanding how price and volatility tell the trader how to build stops to swing trade stocks will get you a life time achievement award. I could write a 3 volume set on what I learned. If you are persistent you will learn how. But it isnât as easy as some âtrading expertsâ explain.

trader3cnd · May 15, 2009

Quote from Rabbitone:

Stops are not impossible to learn how to build for swing trading stocks..

I'm having trouble with this sentence. Is anyone else in the same metaphysical state as me?

options4me · May 15, 2009

Quote from short&naked:

I find that single stocks can provide great trends even when the general market isn't trending at all. However, the short open hours can create huge gaps at open and make risk management with stops almost impossible.

Is there any way to limit one's exposure (like in options) without incurring time risk (theta burn)?

You should use a bounce off of SMA 200 as trigger for your Swing entries on a Daily chart. This should help out on those opening gaps. For shorter timeframes, like daytrade...use price action. H/L.
Stay away from SMALL volume stocks. Stay with qqqq's, spy, etc.

dealmaker · May 15, 2009

Use market neutral strategies i.e pair the stock e.g. Ko/Pep.

Rabbitone · May 15, 2009

Quote from trader3cnd:

I'm having trouble with this sentence. Is anyone else in the same metaphysical state as me?

It says if a stock is in a "State" determined to be swing trading then it is possible to to determine a method to build stops for your strategy to swing trade the stock.

short&naked · May 15, 2009

Quote from options4me:

You should use a bounce off of SMA 200 as trigger for your Swing entries on a Daily chart. This should help out on those opening gaps. For shorter timeframes, like daytrade...use price action. H/L.
Stay away from SMALL volume stocks. Stay with qqqq's, spy, etc.

Ah but that's the thing. There are stock out there with 1-10M volume (much lower than SPY) that have excellent price action one can take advantage of.

Also what if the SPY goes the way the Nikkei did. Then it's time to search for single stocks that trend.

short&naked · May 15, 2009

Quote from Rabbitone:

I have automated swing trading of stocks (for the last 10 years). Stops are not impossible to learn how to build for swing trading stocks. But, understanding how price and volatility tell the trader how to build stops to swing trade stocks will get you a life time achievement award. I could write a 3 volume set on what I learned. If you are persistent you will learn how. But it isnât as easy as some âtrading expertsâ explain.

I see a problem though with stops and single stops that no solution could solve, which is that you run the risk of a black swan even (bad news about the CEO, etc.) pushing the stock down so fast that you cannot find enough buyers to unload it.

Problem is you will never know if or when this will happen.

Rabbitone · May 15, 2009

Quote from short&naked:

I see a problem though with stops and single stops that no solution could solve, which is that you run the risk of a black swan even (bad news about the CEO, etc.) pushing the stock down so fast that you cannot find enough buyers to unload it.

Problem is you will never know if or when this will happen.

If you think Iâm going to give my swing trading profits back from the last 10 years and go back to work your wrong. Iâm staying retired and collecting my automated swing profits. Automated swing trading works for me just fine event or no event.

If one time events or opening gaps scare you away from swing trading it means your strategy is not working long term or you may not make it as a trader. I have been through some âhellatiousâ drawdowns because of stocks news, politics and you name it. Even though these occasional losses are large they are small in the longer term profit picture.

While trading Apple for the last 5 years they are constantly jumping on speculation and event news. They almost have a big price âeventâ every 3 weeks. But, the other trades that I make on non-event days have made up for âeventâ losers 10 fold. The other fact is I have often been trading in the direction of those events about 50% of the time and had big winners from these trades.

It all evens out in the end. If you stick with a sound strategy it will pay off. If you begin questioning each price bars motives you will quickly lose your ability to trade any strategy.

How many strategies have you traded longer than 6 months straight?