When to Push the Throttle

[PristineTrading 10]

We believe in the 80/20 principle in many aspects of life, including trading (i.e., 20% of the workers do 80% of the work; traders will make 80% of their money in 20% of the time, etc.). So the key, then, is to determine when to SOH (Sit on Hands), and when to trade more aggressively (push the throttle), and take 2x to 3x the normal share size, provided your Trading Plan permits. Here are a few of my considerations when deciding to get more aggressive on the long side (opposite for shorts):

 

Is the market environment what we call a "green light day?" For this, we focus on the trend of the broader markets and following market internals. Imagine if the SPY, DIA, and QQQ were all quality patterns on the weekly, daily and hourly charts, with multiyear monthly major support? Is the TICK bullish, with support at 0 on the day, and oscillating above 0? Is the TRIN bullish, in a tight range below .5? If so, you should be diligently searching for high odds, quality patterns to trade long for day trades and swings.

 

Next, the reliability of the pattern is key. You want a stock showing relative strength to the sector and broader markets, and a pattern that delivers a huge reward-risk (i.e., huge target with a small stop). Remember, you must always be asking yourself how much risk you are assuming in relation to the desired target. When you see the high odds patterns that you recognize, and the internals support longs, you should be ready at the keyboard and possibly "Push the Throttle", in alignment with your trading plan.

 

Finally - are you a good trader? Do you have enough experience in the market and are you hitting your goals? DO NOT PUSH THE THROTTLE if you are having a bad day or bad week or bad month. DO NOT PUSH THE THROTTLE if you are still in the early stages of learning and losing consistently. Don't worry, your time will come. But the key is to keep yourself from BLOWING UP your accounts while you are learning. The bottom line is that if you are losing, any urges you get to PUSH THE THROTTLE may be result of revenge trading or frustration. It will do nothing but beget more frustration and larger losses. KNOW YOURSELF.

 

So, if you are 'hot' and you are 'seeing the market' well and have been doing well following your plan and successful, then you may consider PUSHING THE THROTTLE. I find that when I "Push the Throttle" my win percentage skyrockets - only because I have experience and these days and trades are HUGE winners. But if you are NOT there yet, and you know whether you are or not, DO NOT DO IT. Manage to your plan and gain consistency and profitability thru great market experience and review, and you will be ready to PUSH THE THROTTLE when the time presents itself.

 

KURT CAPRA

Contributing Editor

Instructor and Traders Coach