My Trading Strategy Part 2: Entries, Exits, & Risk Management
Summary
TLDRThe 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.
Outlines
😀 Entering positions and managing risk
This paragraph covers how to enter a position when a stock breaks out. It discusses looking at the 5 minute chart for high relative volume on breakout day to identify a potential entry. It explains buying on the 5 minute candle high breakout, setting your stop loss at the low of day, and using a risk calculator to determine position sizing. It also covers managing risk by not swinging more than 30% of your account.
😊 Managing open positions- stop losses and taking profits
This paragraph discusses managing open positions. It covers using the low of breakout day as your stop loss initially. It explains re-entering if your stop loss is hit and the stock subsequently takes out the highs again. It discusses taking partial profits at close after 3-5 days in the trade to reduce risk. It also covers using a clear price target or 10 SMA close as indicators for taking full profits.
😎 Identifying price targets for taking profits
This paragraph elaborates on identifying price targets for taking profits. It explains looking back at previous price history to find areas where price struggled multiple times. It discusses taking profits when hitting these zones. It also covers examples of using price targets successfully and the benefits over more discretionary profit taking rules.
😏 Tips for new traders and intro to next video
This paragraph gives some tips for new traders, recommending starting with small position sizes. It also introduces the next video, which will cover trading breakouts with options- choosing strikes, expirations, price targets, and managing risk.
Mindmap
Keywords
💡Breakout
💡Risk Management
💡Moving Average
💡Profit Taking
💡Options Trading
💡ATR
💡Resistance
💡Position Sizing
💡Entry Signal
💡Stop Loss
Highlights
Wait 5 minutes after breakout candle forms to base entry
Buy when first 5 minute candle's highs are taken out, stop loss at low of day
Use a risk calculator to determine position size and stop loss
Formula to calculate shares to buy: Risk / (Entry - Stop Loss)
Don't swing more than 30% of account on one trade
Take partial profits at struggling price levels or 50% at day 3/4 close
Move stop loss to breakeven after taking partial profits
Sell remaining shares if it closes under 10 SMA or takes out breakeven
Price targets allow securing trades that shouldn't be secured
Risk no more than 1% when starting out, even less until consistent
Next video covers trading breakouts with options
More setups to trade shares than options
Will cover option expiration dates, strikes, take profit zones
Managing option risk is different than shares
Determine when best to trade options vs shares
Transcripts
all right
part two so so far I didn't link my
tc2000 layout yet I'm gonna do that I'm
gonna link it to like every single one
of these videos
um but for now it's not going to be
there so it's not there don't worry it's
just not there uh
yeah so this is gonna be part two which
is entry managing risk stop losses
taking profits and I'll go over this
risk calculator a little bit
so
basically you guys know the setup the
setup is you know big move up stock goes
sideways as it goes sideways the volume
is dying out and then it's building
these higher lows and it's holding the
moving averages so
yeah just looks good but on breakout day
you're gonna see this you know once this
opens you're looking at the five minute
chart so I got the five minute chart
here on the right we're looking at the
first five minute candle here on
breakout day now
you'll see that this five minute chart
doesn't really look that good it gets
pretty thin if you were to be gate
shedding this uh that wouldn't really
work
but that doesn't matter because we're
not day trading it
it has just enough volume typically I
like to see a little bit more volume
than this uh you can see it's kind of
thin
this is what a thin stock looks like
versus let's say
spy you can see another volume is really
clean price movement's really clean
but this one works it's a smaller cap
563 Mill market cap seven percent ADR so
fast mover
decent candidate here
um the first five minutes so you're
gonna see this breakout and this is what
you see in the first five minutes right
here on the right
you'll see that the volume comes in
right away so people always say like how
do you know it's gonna have to be a big
volume day well I can tell right away
that the first five minute candle has
huge volume relative to the other days
so down here if you look at that it's
like you know the volume is pretty low
pretty low it comes in a little bit in
the mornings on most stocks but on the
morning of breakout day it's going to be
huge like you can see this was looked
like a pretty big volume candle right
there compared to the rest but then this
one just makes it look little
so the volume was just huge on the first
five minutes
and
after that so you wait five minutes
right
next five minute candle comes in so no
matter if the first five minute candle
closes green or red
that's where you're gonna base your
entry off so you have to wait for the
first five minutes pretty much every
single time you could do it on the one
minute but your success rate's not going
to be as good so I would just say wait
for the five minute
and what you want to see here is when
the first five minute candle Highs are
taken out this is when you're buying it
so right here this candle comes through
takes out the highs you buy it and your
stop loss goes at the low of day
so on this risk calculator what you'll
see down here in the bottom right corner
hopefully you can see that
um it'll tell me right here stop loss
low of day and it'll tell me the value
whatever the low of day is it'll say how
many shares to buy to risk one percent
and then uh the dollar amount of that
position so
if you just right click on shares to buy
one percent risk
you get this little menu mine said a
thousand dollars
um so if I want to risk a thousand two
thousand three thousand whatever
I can just multiply that so it's like if
they're telling me to buy 3 700 shares
and I want to risk 2 000 then I'll buy
two times thirty seven hundred shares
not thirty seven thousand shares is that
what I said I don't know anyways
yeah so you would just put your risk
here if you have a 100K account it's 1
000 if you have a 10K account it's a
hundred
pretty simple just put one percent of
your account but that is the first value
press OK and it'll update um and then
you change the dollar amount you do the
same thing so
right here where it says a thousand uh
you just change that to your
your um one percent of your account and
it'll tell you right there and then we
have this ATR check so this little Green
Dot
what you don't want to see so this is
like really really close the ADR on this
is 7.7 percent
you don't want to see it up more than
7.7 percent before you buy it so if it's
up
like right here if you're buying the top
of this candle 8.6 percent
chances are you're too late like you
should be getting tighter uh tighter
stops than that you don't want your stop
to be further than the average daily
range
I mean it doesn't matter all that much
not really you're just going to get less
size either way you're going to risk one
percent the best ones you'll be in like
let's say you get in like this like the
first five minute candle is only one two
percent higher then you get in that'd be
perfect that'd be more ideal
although this one was you know near 80r
I did take it
um even if it's above 80r I'll take it
sometimes but general rule just try to
avoid that try to get in earlier if it's
up you know a lot more like you're
buying it way up here that's probably
not a good idea
but yeah so you buy here when the first
five minute candle's taken out set your
stop boss a little a day if it comes
down and takes out your stop
it is what it is you got swapped out but
then if it goes back up and takes out
the highs of the day you re-enter and
then just leave it at that if it stops
yet again don't try to trade it again
it's just two tries that's it basically
um
so let's see now you know where to buy
it oh the formula so if you don't have
this risk calculator you need to figure
out how many shares that you're buying
so the formula for that is going to be
how do I make this bigger
64. can you see that
okay so the formula for this is going to
be risk divided by entry minus stop
all right so risk divided by entry minus
stop your entry here is five minute high
so let's say you're buying it at five
dollars then you change this to
five and your stop here is
4.62
4.62
and you have a 10 000 account so you're
risking a hundred dollars
now you go to your phone open up the
calculator app
hopefully we all have a calculator app
on our phone or some sort of calculator
nearby so you do five minus 4.62
equals
0.38 so now you do 100 divided by
0.38 and that tells you
263.15 so you're buying 263 shares right
so that equals two six three
pretty simple right I mean you're not
going to want to calculate that while
this candle is forming like you're going
to be
you're going to be kind of in shambles
there especially if you have multiple
breakouts to take when the Market's good
that's why I have this risk calculator
just tells me right there I open up my
broker boom type that in and I set the
stop loss with the um the buy order also
so I can just click the check box that's
why I like Weeble
um Okay so
that should make sense for entering and
then managing your risk oh all right so
if 263 shares what does that equal 263
shares at five dollars
is five times two six three so that
equals thirteen fifteen so you're
putting in if you have a 10K account
that's about 13 of your account you
should not be swinging more than 30 of
your account so if you get a really good
entry and like your stop is really close
to your entry and it says uh put in like
you know over thirty percent of your
account that's fine buy over 30 of your
account
totally fine but before the day ends cut
it down to 30. because if this like
ended ended up gapping down you'd be
losing a lot more than one percent of
your account so
it's just not safe
um
yeah but that way you'll have about 10
percent of your account into this
position and then as the days go you
know day three
this goes up like 30 or let's say from
entry it goes up like 18 so times 1.18
1500 excuse me like 200 bucks risking
100 bucks basically
pretty good right
pretty pretty simple
um all right now that we got that out of
the way
what is next
stop losses went over that managing risk
position sizing
entry
taking profits okay so for taking
profits now this can be a little bit
complex this is sometimes discretionary
if you see where I have this red line so
I had this red line before this ran into
that
and I did take all of my profits right
there
so you might be like what the why
um great question
where's day two
let's look at day two
you can see it did end up going above
that but
all right so if you zoom out on the
chart
and you look back
and price was previously Above This
level you're gonna have areas like this
can you see all this yeah so this gives
me two price targets
price Target one would be the bottom of
this because there's multiple touches
here price is clearly struggling here
um it kind of came down and touched this
almost a little bit bounced back up
and then here it just really struggled
and you can see it there
I wouldn't really
recommend you try to find your price
targets like that I mean I post pretty
much all my trades on Twitter and then
the Discord obviously literally
everything in there
if you want to you can but sometimes it
might make you sell a little bit early
so I would say if you can identify a
price Target easily and you see an area
like this you know where price is just
really struggling there
um and you see that multiple times so
this one like price was struggling here
quite a few times and then it struggled
here again bounced off this like quite
perfectly
if you see something like that
that's a pretty good indication that you
know your take profit zone is good and
then you'll see price struggle along
your take profit zone so if we look here
on the five minute you see it came up on
day two went right towards it then came
back down came up again went right back
down went up for it again and this is
where I actually took profits I was like
it does not want to go when it came
back down a little bit I took profits
right here
and then what does it stay
day three day three it came up right to
the same level so I was like okay that's
solid but then it ended up pushing
through there I was like oh wow what a
surprise
really didn't expect that um but then it
came down so if you don't have a price
Target like if you can't identify a
price Target like that what you do is
you wait three to five days in so
typically that's the strongest you can
see here one two three four five so day
five would have been pretty shitty
but let's say day three or four you wait
until close or you wait a few minutes
until closed or before close I mean and
you sell a half or a third of your
position so it depends on how much it's
up if it's up a lot then just sell a
third and you'll be good but if it's not
up like a bunch like you're not up
over like three to one I guess you could
say just sell half of it
um right before close so let's say day
three so half right before close
it's about a close Market's about to
close and it's at 584. you bought it at
like five it's up a decent amount
you sell half there
your stop loss then goes from Break Even
or it goes from goes from um low of
breakout day to break even
so that way you just took some profits
and now there's literally no way you're
gonna lose in this position and then
you're like okay where do I sell the
rest so either it's going to come back
and then take out your Breakeven stop so
wherever you bought it at five dollars
or it's gonna close under the 10 SMA and
that's where you take full profits
so
today it closed under the 10 SMA
right here you can see it closed under
this purple line which is the 10 SMA on
the daily chart
that's when you sell the entire position
if we go and we take a look at carvana
carvana I had my price Target here
if we follow that line you can see price
struggled here came up tapped there
and then we go back even further
um I had a little trouble during what is
that coven I think so
and then even further back here
it struggled here again so it was just
like a really clear price target for me
struggled here bounced along there a
bunch of times bounced here A bunch of
times came down bounce came down bounce
and then you know a couple times there
so I was like okay that's a pretty good
price Target and it looks like it's
already respecting that so it came up
had good earnings gapped up to this
level
kind of went through there throughout
the day and then just took a turn came
down did this whatever set up again and
then went right back to that level so I
ended up selling that position that day
let's go back to NN so carvana if you
were to wait and use the three to five
day rule you would have gotten
you would have lost on that position
and then if you waited until it was
closed under the 10 to sell the rest you
would have been down below low of day so
you already would have got stopped out
that way using this price Target system
you are able to secure a lot of Trades
that maybe shouldn't be secured or you
can take profits at a good point it's
good for options too for sure
but yeah okay let's see what's next
oh never risk more than one percent if
you're risking more than one percent
you are pretty stupid in the beginning
you should risk like a quarter percent
or half because you're going to lose
more
um you're probably going to be taking
like some shitty setups uh you just you
won't have a full understanding of
everything so don't try to risk a lot of
money because you don't even know what
you're doing yet wait until you know
what you're doing and then risk one
percent if you get really good in really
good market conditions you can risk two
percent but do not jump ahead and try to
risk more than one percent
please keep it to like half a percent if
you're first starting out quarter
percent is preferred but I know some of
you guys have a lot smaller accounts
so yeah I guess that wraps it up for
part two
um part three is going to be training
breakouts with options so I'll show you
guys
how I pick my strike prices expiration
dates
um price targets we'll go over that
again
and then how I manage my risk with
options so now you guys know how to
manage your risk with shares you know
when to take profits and you know
when to sell the whole position
next one will be with options because
options you don't get as many setups
you're going to get more setups where
you actually have to trade shares rather
than options and also hopefully show you
guys when to be trading options for swim
to trade shares it's going to be a
little challenging because that's
something I look at on my broker
uh either way though we'll cover
expiration dates uh strike prices
take profit zones all that good stuff
but yeah
all right I will see you guys in part
three
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