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.

Outlines

00:00

😀 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.

05:00

😊 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.

10:00

😎 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.

15:01

😏 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.

Keywords

💡Breakout

A breakout refers to when a stock price breaks above a key resistance level with increased volume. This signals the start of a potential big price move. The video talks about trading breakouts by waiting for the first 5 minute candle to break the pre-market high after it consolidates and holds key moving averages.

💡Risk Management

Risk management refers to only risking a small percentage (1-2%) of your account on any one trade. The video advises using a risk calculator to determine proper share size and stop loss placement to control risk.

💡Moving Average

A moving average is an indicator that smooths out price action by taking the average price over a set time period. The video looks at 10-day and 20-day moving averages to identify support areas and determine when to sell remaining shares.

💡Profit Taking

Taking profits refers to selling shares of a position to lock in gains. The video discusses taking partial profits at resistance levels or after big up moves and using moving averages to determine final exit points.

💡Options Trading

Trading options rather than shares on breakouts. The video mentions it will cover choosing strike prices, expiration dates, and risk management for options positions in part 3.

💡ATR

Average true range - a volatility indicator that measures a stock's average price movement. The video's risk calculator uses ATR to check if the price move has already exceeded the normal daily range.

💡Resistance

A resistance level represents a price point where a stock has struggled to break above multiple times. The video shows how to identify historical resistance levels to set profit targets.

💡Position Sizing

Position sizing refers to calculating how many shares to buy based on risk tolerance and stop loss placement. The video demonstrates formulas and a risk calculator to determine shares to purchase.

💡Entry Signal

An entry signal alerts a trader on when to enter a trade. The video looks for the first 5 minute candle to break pre-market high with increased volume as the entry signal for breakouts.

💡Stop Loss

A predefined exit point to limit losses if the price moves against the trade. The video sets stop loss at the low of day and adjusts up to break even after securing partial profits.

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