Here’s how you maximize your profit exposure while minimizing/eliminating your risk. Check out this intraday chart trade on Nvidia (NVDA) (June 13, 2017)
NVDA
I want to talk about NVIDIA ( NASDAQ:NVDA ). You can see this grid here, this is what I want to show you. In the afternoon, particularly if we are under some kind of business issue where I have to finish my market analysis and get it out earlier than I would like to on a particular time frame, then I have to do a lot of work during the last hour of trading; reviewing things, just research, these videos don’t just happen on their own. And so a lot of times when I do that I can’t manage my own positions, I miss out on opportunities. Sometimes miss out on losses that I would have otherwise taken, which is a good thing. But the bottom line is, sometimes I just don’t have time or the ability to pay attention to the market.
Now, that works most of the time. But every once in a while you will be in a situation where you really would like to stay in touch with the market or in a particular stock. Because you have a big position or you want to have a big position, it could go either way, whatever the case may be. I just want to show you something that I use. I was using it today on NVIDIA ( NASDAQ:NVDA ), in what was not really a particularly big move, but I actually did quite well from a profit standpoint because I was able to take a big position.
Here is what I did, I am talking specifically about the last couple hours of trading. I was looking at NVIDIA ( NASDAQ:NVDA ) today, I like this company, love the company. The stock is in a little bit of a trading range, but it had this big, I don’t know if you can see, but this is 11:00 this morning, this is 5-minute chart. So it had this gap and crap, traded down to about 146.00 or so on heavy volume, and then after that time the volume kind of declined. The stock was trading in this range and I didn’t really know whether the stock was going to fall towards the end of the day or not. But when I see a stock, just kind of as a general rule, when I see a stock gap up, trade down to a new low, hit that low and then not come back to it. In fact hit higher lows, and then it is doing this type of thing.
Well, as the afternoon progresses it is not like suddenly big hands that were in the stock before are going to say, “Oh my gosh! I forgot about this kind of thing. I am going to go ahead and sell the stock.” They are not going to do that; you see the big volume here. So my bias was actually towards the upside. But, I have got a lot of stuff to do. I can’t just be sitting here looking at NVIDIA ( NASDAQ:NVDA ). And when I am day trading I am actually pretty precise in my trading. For me $7.00 for a commission, that is not going to get my attention. Because I plan on making a heck of a lot more money then $7.00. What my point is, I may buy a stock 5, 6, 7 times in the course of a day, an hour, even a shorter period of time if it is doing what I want it to do. What I will RARELY do is sell it all at once. You would be amazed how many times you think the stock had topped out and then it hasn’t. So you have wound up selling it all, the stock continues to go up without you, and then you are kind of screwed.
So lets talk about this. I thought that NVIDIA ( NASDAQ:NVDA ) was going to rebound and so I added to my position; it was right around, about 148.50 maybe 148.60, it was before the stock broke out above 149.50. So I started to building a position here. But crap! I have got to be looking at the market. I have got to figure out stocks that I am going to cover. So what did I do? I set an alert, I actually set a bunch of alerts. But first of all, I buy the stock, I think it was, we’ll call it 148.50, I think it was actually a little bit higher than that, but it is fine. Then if the stock falls down my thesis was that this was a low that was going to hold. So if the stock falls down below this level I want to get out, it is 147.90. So I am buying some here and then I immediately set a stop down here at 147.90. I am looking around and if I hear my software go ding or whatever, then oh crap, the trade went against me, I am out. Sure glad I bought a small position.
Then I ALSO set a price alert right above here. I don’t want to be following this stock. I already have my downside defined so I don’t care. There is no reason for me to monitor it because I have my stop loss in place. But I don’t want to sit there staring at it, waiting for it to breakout so I can hurry up and buy. I just have other stuff to do. So I would look back here, the high on this bar was 149.46, so I would put an alert at 149.40, just BELOW that level. So now I buy at 148.50, I put an alert at 149.40. Now I have it bracketed. I take a small loss. If the stock moves against me I get an alert just BEFORE the stock hits a new intraday high here. I am just talking for this particular time period. So with this stock bracketed I can go about my business, do my thing, I know I am set right here.
When the stock breaks out I am happy because my original purchase is making money. Now I buy more. As soon as I do that I set a price alert back, say 50 cents below where the breakout is, because I want to know if this breakout is a fakeout. I have bought more, I have a stop down here on my initial, I go ahead and raise that stop to about 149.00 or so. I buy it at 148.50, this is really, really tight trading by the way. Think about this from a percentage standpoint, we are talking about 1.5 or 2 percent. It is at the end of the day and the end of day stuff doesn’t move just like the morning stuff does, it is a little different. So I buy a second tranche up here. I shift my stop on the first one up to about 149.00ish, maybe little bit above, and so I have a PROFIT locked in on this first buy. Then I have taken risk on this second one.
What did I do then? What I actually did was, I put a stop, because this moved pretty quickly, I added this to my initial stop. So if I got stopped out on the first buy, again right about here (149.31), if I got stopped on the first buy I would have a slight profit. But on the second one I would have a slight loss, so they would kind of balance themselves out. Then I set a price alert somewhere up here (151.40) to tell me once again to buy. So now I buy the third time and then I raise my stops accordingly. All the time that I am doing this I am looking at other stuff. I don’t have to do anything. My software pulls me back to it when there is something to do. And then ultimately I did wind up closing out the entire position, not at the top, but as the stock moves up I am raising my price alerts.
You would be amazed, it probably happened 3 or 4 times, the number of times when the stock looked like it was reversing and I wanted to just sell, but I didn’t, because I thought, “No, I have got other stuff to do, I want to stay true to my discipline.” And so I would raise the stop on my positions to where, say this bar here, exactly 3:30, the low is 151.25. I had my stop at, I think it might have been 151.15, maybe it was below 151.00, but I set it pretty tight, because now we are at the last half hour of trading. And by the way, what happened with NVIDIA ( NASDAQ:NVDA ) happens a lot with stocks that are moving into the close. I will show you what I mean, the stock continues to go, then finally it got stopped out.
Now this was a really, really small move, but I had a lot of shares. I wasn’t trading options on it or anything, not during the last half hour, thank you very much, but I had a pretty decent number of shares. The trade started working in my favor and then I just set up a string of stops and alerts to manage it; add to my positions when I felt it was warranted, but always raising a stop. So I am increasing my upside exposure to make as much money as I can. But not increasing my risk as my upside exposure is increased. And I have to say this too, this trade, again, small dollars here, but the trade worked out well, because the stock broke out and then kept going for a bit. So this was a good thing.
Now on the other hand, if the stock, and this is intuitively obvious but sometimes you have got to hear it. If the stock moved up here and then ultimately rolled over, and then I get stopped out, and I get stopped out, maybe I break, even maybe I make a little bit, maybe I lose a little bit. This isn’t a crappy trade, it is not a bad trade, it is just what happened to the stock, it is not you. It is not, “Oh, I shouldn’t have done that.” No, you have got a method, you do your thing, you make your trade. It just so happened that in this case the stock moved against you. Well, it is good that we had a risk management plan. What I am saying is, if you put yourself in a position to profit when a stock is moving higher, then guess what? When the stock does move higher you are going to be making money. And you are going to be making a lot of money, because you have been adding to your position as the stock moves up. And you have been adjusting your risk accordingly. Now one thing, by the end of the day I was out of here. Now I just have a couple of spreads on NVIDIA ( NASDAQ:NVDA ), well out of the money on both sides. But towards the end of the day the stock almost always, it will almost always rollover.
You can look at Amazon ( NASDAQ:AMZN ), the same thing, 5-minute chart. A pretty similar looking chart here versus here. A big sell-off on Friday, a little move back on Monday, and then today just kind of stalled out right in the middle. But you can see Amazon ( NASDAQ:AMZN ) about 3:30 up to the top, I guess 3:40 in this case, and then it starts to roll over. You can use these alerts and sequenced stops in order to help you make money. And one other thing, this is a whole different chart here, I have 3 and 4 different windows up and this was just on the side so I could take a look at this. But while I have NVIDIA ( NASDAQ:NVDA ) up like this I also have the QQQ’s ( NASDAQ:QQQ ) because NVIDIA ( NASDAQ:NVDA ) is a tech stock and it kind of trades in sequence.
As NVIDIA ( NASDAQ:NVDA ) starts to breakout here I look at the QQQ’s ( NASDAQ:QQQ ) and I see a similar breakout so that gives me the confidence to add to NVIDIA ( NASDAQ:NVDA ). And then when this was rolling over at about 3:45 NVIDIA ( NASDAQ:NVDA ) was still hanging in there a bit, but you could see that was succumbing to this thing. So I was using the QQQ’s ( NASDAQ:QQQ ) as kind of a barometer to see where the overall market was and then I closed this out.
By the way on this, lets say you are trading this stock, you have got the QQQ’s ( NASDAQ:QQQ ) and then you want to see what the broader market is doing. You can see, for example, that this is different. So you can use this multiple window setup, with multiple stops, and multiple price alerts to keep you in the game; help you maximize your profit exposure without maximizing your risk. And you are going to find that the winning trades that you make are going to far exceed the losing trades that you take. And it is all because you are using your software to your advantage.
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