Tell me if this has ever happened to you…
You’re stalking a trade setup, the stock is in a hot sector, the chart looks perfect…
But the next day, the price reverses, and your blood pressure skyrockets.
What do you do now?
- Sell?
- Hold?
- Buy more to average down?
- Quit trading forever because you can’t handle the stress anymore?
Anyone can find a decent setup…
The problem is, once they find one, they convince themselves it’s a shoo-in.
There’s no such thing as a 100% guarantee in the market.
Keep the gains you make from winning setups. And cut the setups that fail to follow through.
Define Your Trade BEFORE
Stocks behave similarly around key levels.
Whether the levels are based on the moving averages, common support and resistance, Bollinger bands, etc.
Whatever indicator you use, we see specific patterns develop at these levels.
Like I said, a lot of new traders are good at recognizing key levels on a chart. That’s how they find trade setups that they like.
The issue comes when the stock starts behaving differently from their trade thesis… because they only theorized for a guaranteed winner.
Understand, you could be trading an A+ setup. And it can still fail.
That’s the reality of the market. And you have to come to terms with it.
Build your trade plan, and include a worst-case scenario.
I just eeked out of TeraWulf Inc. (NASDAQ: WULF) close to break even, before the setup turned from bad to worse.
Learn from my expert trade. And apply this lesson to every trade you make going forward.
An Example of Good Risk Management
This is the trade alert I sent on July 14 for WULF…
AI stocks are getting smacked right now.
The valuation concerns are back, and economic pressures from the Iran war aren’t helping.
As WULF slid further from its 50-day EMA, it dropped to a key support level around $20 per share.
$20 is a nice whole number, and after a 40% decline in the share price, I theorized we could see a momentary rally off of support.
But the next day, the stock fell through $20 again and I had to get out.
Here’s an updated look at the multi-month chart…
And here’s the play with intraday price action…
Notice that the stock fell lower on July 16, anyone who overstayed their welcome almost certainly sold for a loss.
Traders who followed my alerts likely got out with a small loss (or broke even).
That’s OK.
Actually, it was better than OK … it was a perfect trade.
- We didn’t take home sizable gains.
- The stock didn’t follow my bullish theory.
- But we protected ourselves despite the selloff.
As far as I’m concerned, this was an A+ setup that just didn’t pan out.
I’m not angry or upset, and I’m definitely not throwing in the towel.
This is trading.
You win some. You lose some. You keep your losers smaller than your winners.
Make your trade plan before you enter, that way your emotions don’t get a say.
Then trade like a robot.
By all means, put your trade strategy into ChatGPT and let it run the show… whatever works for you.
Trader: “Chat, should I sell my position in XYZ stock?”
Chat: “Judging by your trade plan and the history of this setup, blah blah blah…”
Sometimes it takes a robot to trade like a robot.
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
