Trade Management

Before explaining my strategies, it is important to know about my order entry, exit and trade management.
It always intrigues me in the www.Vancouver-Traders.com chatroom when two elite traders select the same stock—one long and the other short. Often, by the end of the day, both are profitable, proving that experience and trade management are more important than the stock and the direction that traders pick.
My trade size depends on the price of the stock and on my account and risk management rule (Chapter 3), but 800 shares is my usual size.
  1. I buy 800 shares all at once.
  2. I sell 400 shares in the first target, bringing my stop loss to break-even (entry point).
  3. I sell another 200 shares in the next target point.
  4. I usually keep the last 200 shares until I am stopped out. I always retain some shares in case the prices keep moving in my favor.
Some professional traders never enter the trade all at once. They scale into the trade, meaning they buy at various points. They might start with 100 shares and then add to their position in various steps. For example, for a 1000-share trade, they enter either 500/500 or 100/200/700 shares. If done correctly, this is an excellent method of risk and trade management. However, managing the position in this system is extremely difficult. Many new traders who are trying to do this will end up over-trading and will lose their money in commissions, slippage and averaging down the losing trades.
I rarely scale into a trade but at times I will, especially in very highly volume traded stocks. But remember, scaling into a trade is a double-edged sword and beginners may use it incorrectly as a way to average down their losing positions, sending good money after bad. I don’t recommend this method for beginners. Although they can appear similar, there is a huge difference between scaling into a trade and averaging down a losing position. For beginners, averaging down a losing trade is a recipe for wiping out your account, especially with small accounts that cannot stand several rounds of averaging down.