Question:
Would you cover on an intra-day bounce above 31 or closing above 31?
My Response:
The reason for waiting until market close would be to see what the so
called "smart money" will do (institutions do much of their trading in
the last hour of the day). Many traders will avoid making a sell decision
(or in this case, a cover decision until then). However, if SFA surges
above 31with heavy volume I would be covering regardless of when that occurs,
considering that volume levels will tell you what institutions are
doing. The only exception might be in the first 30 – 60 min. of trading, where I
typically avoid making any trading decision.
Follow up question:
Thanks. Just curious, do you use more of a mental stop than a hard stop
order so you can watch volume? And if SFA goes above 31 on light volume
will you not sell.
Since I don’t trade full time and have trouble monitoring trades
throughout the day I enter stop orders immediately after a trade has
been entered. I have placed my stop on SFA at 31. This seems to work
best for me but always open to suggestions if you have any (I feel exits
are one of the more important aspects to trading and always looking to
improve in this area).
My Response:
Since I am able to watch the market most days, I don’t use stop orders.
This way I can base my decision on volume levels as well as the strength
of the market. To answer your question, I would be less likely to cover if
the stock rises through resistance with light volume. Although, it would be
surprising to see it get past those resistance levels with light volume.
Most are not able to watch the market during the day, so you MUST use
stops. Here’s a hint though. Never place a stop on a whole number. You
increase your chances of getting shaken out. Remember that market makers know
all stop loss levels. It is human nature to want to set stops at even numbers,
so there will be a large number of stops at those places. Market makers
may run a stock up in order to cause a short squeeze. I don’t want to get
too complicated here.. make sure you place stops at odd numbers where others
wont’. So maybe 31.23 or something like that.