There were 3 new highs and 106 new lows in my universe of 4,000 stocks on Wednesday. The QQQQ completed the 17th day of its short term down-trend. It would have to rise a lot more to begin a new up-trend. Still, I cannot resist buying an occasional strong stock during a counter trend rally. One stock I own a little of is AMZN, a stock championed by Judy.
AMZN had a huge gap up on January 30th when it beat earnings estimates, then consolidated for several weeks. (Looks like a head and shoulders bottom?) Today, AMZN appears to have broken out again. AMZN has a great new product in the Kindle 2 digital reader.
When I buy a stock like AMZN, I place a sell stop order immediately after the purchase goes through, at a point below recent support. In that way, if I am wrong and the stock goes down, I will be automatically sold out with a small loss. (Instead of using a stop loss order, I might buy a put for insurance) The key to success in the market is to have small losses and much larger gains.
Below 60? or below top of Jan Gap? or under certain M&A?
Just curious as to what your approximate Risk Parameters are on your trades such as this?
Thanks
You probably bought it after the gap, if so is your sell stop at top of gap? Or do you allow for stock to come down to fill the gap (below the red MA line) before you are stopped out? Thanks if you teach us that!
Setting stops is more of an art to me and based on personal tolerance of risk. I typically set it below recent support but close enough so that I will have a small enough loss that I feel I would buy it back if it moves up again. I NEVER hold a momentum stock that CLOSES below its rising 30 day average—the red line here.