My Trading Strategy Part 2: Entries, Exits, & Risk Management

Summary

The video covers day trading breakouts, focusing on entry techniques, position sizing based on risk management, setting stop losses, and taking profits. It explains waiting for the first 5-minute candle to confirm the breakout by taking out the highs, then entering a position sized to risk 1% of the account, with a stop loss at the low of day. It also discusses using previous resistance levels or the 10 SMA on the daily chart to determine take profit areas, and selling portions of the position at certain points to lock in gains while moving stops to breakeven.

Takeaways

• 😀 Wait 5 minutes after market open to enter a position on breakout day
• 📈 Base entry price off the high of the 2nd 5 minute candle
• ❌ Set stop loss at low of day
• 📉 If stop loss hits, can try re-entering if new highs made
• 🤑 Use risk calculator to properly size positions
• 💰 Risk no more than 1% of account per trade
• 🎯 Can take partial profits at clear price targets
• 🔁 Take remaining profits on day 3-5 or if closes under 10 SMA
• 👍 Sell half position before close on day 3-5 up big
• ☝️ With options focus on strikes, expirations and take profits

Q & A

What timeframe chart is used to watch for the breakout entry setup?

The 5 minute chart is used to watch for the entry on breakout day.

Where should the initial stop loss be set?

The initial stop loss should be set at the low of the day.

How can you calculate the number of shares to buy for a 1% risk position?

Use the formula: Risk / (Entry Price - Stop Loss Price). For example, if risking $100, buying at $5, and stop loss at $4.62, then $100 / ($5 - $4.62) = $100 / $0.38 = 263 shares.

What percentage of your account balance should you risk per trade?

You should risk only 1% of your total account balance per trade. 0.5% or less is preferred when first starting out.

When should you take partial profits?

On day 3-5 of the trade, sell half or a third before the market close or just before.

What adjustment should be made to the stop loss after taking partial profits?

After taking partial profits, the stop loss should be moved up to break even on the remaining position.

What indicator level signals to exit the remaining position?

When the price closes below the 10-period simple moving average (10 SMA) on the daily chart, that signals to exit the remaining position.

What are some considerations for selecting strike prices when trading breakouts with options?

Strike price selection for options will be covered in Part 3.

What risk management guidance is provided for trading options on breakouts?

Guidance for managing risk when trading breakouts with options will be provided in Part 3.

How can previous support and resistance levels be used to set price targets?

Look back on the chart for areas where price previously struggled/bounced multiple times. These areas can act as take profit targets.