What happens when you are in the right market at the right time using a trend following system to trade monster stocks? Amazing returns. The best returns of my 13 year trading career by far. Here are the principles that let me seize the opportunity and have an amazing quarter.
METHOD
- I use the IBD 50 as my watch list primarily along with the top ten stocks for earnings and sales growth in the S&P 500. (I will trade a special situation also)
- I choose only the very best stocks to trade long in the entire market.
- I want my stocks on unique companies that can not be duplicated easily.
- I use key moving averages for entry and exit signals. (5day ema, 10 day sma, 50 day sma, and 200 day sma.
- I add to winning positions early when possible.
- I find trending stocks and ETFs and trade them in the direction of the trend.
- I do not short stocks in a bull market.
- I trade the chart not my opinions.
- I do not marry stocks I only date them until they stop going up.
- I let stocks trending in the right direction run as far as they will until they reverse.
PSYCHOLOGY
- I keep CNBC turned off while trading.
- I do not care about others opinions I care only about price and chart action.
- I do not try to predict, instead I trade in accordance with the chart.
- I am not trying to prove I am right I am trying to make money.
- I am not trading for ego gratification I am trading for money.
- I am not trying to be the genius who calls a top I am the trend follower who follows a trend all the way up until it ends.
- I admit freely to my losing trades along with my winning trades.
- I do not get emotionally attached to each price movement through out the day.
- I have faith in my rules, methodology and system.
- I understand it that it is the market conditions and not me that creates profits.
RISK MANAGEMENT
- I never add to a losing positions.
- I carefully control position sizing to limit risk based on volatility.
- I attempt to never lose more than 1% of my capital on any one trade.
- I trade smaller when volatility is high.
- I sell positions with volatility stops when daily ranges double in the wrong direction.
- I have stale stops and sale positions that do not trend in four days after entry.
- I quickly sell losing trades when my stop is hit.
- I sell stocks when they close in the bottom of the days range.
- I never expose more than 6% of my capital to possible loss at any one time.
- Risk is priority #1, profits are #2.
Generally a market run like we had in the first quarter is followed by a correction, so my goal for the 2nd quarter: KEEP THE PROFITS. Stick with the rules and respect the profits.