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Below is an extract from todays entry on trading scenarios in 'The Aleph Blog'.
http://alephblog.com/
As a short term trader I am often faced with decisions such as these. In fact yesterday I took a small position in COI and am wondering on the best way to manage the trade. Perhaps scenario 3. fits this situation pretty well.
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"1) Say you bought a stock and it rapidly rallies, yet not to the point where you think it is at fair value. Perhaps recent events have made you re-estimate fair value upward. What to do? Sell half of the position, and wait. If the price falls, buy back the position. If it rallies further, sell the rest.
2) Say you want to buy a stock, but it is plunging like a stone. You’ve done our homework ”” the balance sheet is strong enough to self-finance the company for three years, estimated earnings for the next indicate the company is cheap, what to do? Buy half of a full position, and wait. If the companies rallies sharply, sell the position. If it continues to fall, wait until it stabilizes, confirm your fundamental research and buy up to a full position.
3) Say you like a stock, but it has rallied past your buy point. What to do? Buy half. If the stock comes back to the buy point, buy a full position. If it rallies further, sell the position.
4) Same as number 3, but reversed for shorting."
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http://alephblog.com/
As a short term trader I am often faced with decisions such as these. In fact yesterday I took a small position in COI and am wondering on the best way to manage the trade. Perhaps scenario 3. fits this situation pretty well.
----------------------------------------------------------------------
"1) Say you bought a stock and it rapidly rallies, yet not to the point where you think it is at fair value. Perhaps recent events have made you re-estimate fair value upward. What to do? Sell half of the position, and wait. If the price falls, buy back the position. If it rallies further, sell the rest.
2) Say you want to buy a stock, but it is plunging like a stone. You’ve done our homework ”” the balance sheet is strong enough to self-finance the company for three years, estimated earnings for the next indicate the company is cheap, what to do? Buy half of a full position, and wait. If the companies rallies sharply, sell the position. If it continues to fall, wait until it stabilizes, confirm your fundamental research and buy up to a full position.
3) Say you like a stock, but it has rallied past your buy point. What to do? Buy half. If the stock comes back to the buy point, buy a full position. If it rallies further, sell the position.
4) Same as number 3, but reversed for shorting."
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