One of the most important lessons for new traders is that certain rules are immutable.
Unlike the pirate’s code, these rules never change…
I’m not a perfect trader (obviously).
Sometimes I get greedy, or overstay my welcome.
Other times the trade just doesn’t work. I’m fine with that.
But as much as possible, I follow my own rules.
Even if it means locking in a loss I don’t want to take.
Or a choppy win where I thought it could go more…
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2 Trades With Different Outcomes
These two trades were completely different patterns with different outcomes.
One was a solid win, and the other an annoying loss.
But with both trades, I stuck to my rules.
That’s important, because my long-term goal is not to win or lose on any one trade, right?
My goal is to become a better trader (and better teacher).
With that in mind, let’s break them down…
The Weekend Trade That Didn’t Work
Here’s what happened on my latest Weekend Strategy trade…
On Friday (Oct. 23), Nautilus Biotechnology (NASDAQ: NAUT) was a classic example of what I look for.
What did I see?
NAUT Was a Big Percent Gainer
For weekend trades, I typically look for something up at least 20% on the day.
With all the crazy 100%+ spikers we’ve seen the past few months, that might not seem like much. But for a potential weekend trade it’s good.
Why?
Because if a stock is up too much, everyone is already watching. So, for weekend trades, I prefer when a stock does this…
As you can see, NAUT spiked around 27% in the first 90-minutes on Friday.
Why did it spike?
That brings up my second criteria…
NAUT Had a News Catalyst
On October 15, the company announced it would be reporting earnings today (Oct. 27).
That’s not very exciting, right? But the company also presented at a conference last week and its technology got hyped on a podcast.
That combination got enough attention to make the Friday move happen.
Which brings up the final thing I look for in a weekend trade…
NAUT Was Holding Its Gains Going Into the Close
I want to see a stock spike and then close at, or near, the high-of-day.
NAUT met my criteria, so I bought it on Friday afternoon.
Unfortunately, I got caught in a Monday morning washout…
This loss was annoying because I tried to get out sooner, but couldn’t (broker issues).
Still, considering how far NAUT dropped, I’m glad that I followed…
Rule #1: Cut Losses Quickly
The reality is, sometimes you get stuck in a trade longer than you want.
And that makes rule #1 even MORE important.
Imagine how much worse it could have been if I’d stayed in.
When you’re wrong, cut losses!
Now let’s take a look at my second trade…
Monday Morning Breakout
ClearOne Inc. (NASDAQ: CLRO) was a big runner on Friday. After it double topped in after-hours trading, it faded hard.
It spiked again in premarket trading yesterday…
The double top on Friday was ~$4.67. When it spiked in premarket yesterday, it hit resistance around $4.35.
I bought the breakout, but not at either of those two levels.
Instead, I waited for confirmation and took advantage as CLRO broke through a key psychological level…
I bought CLRO as it passed through the half-dollar level at $4.50. Remember, whole and half dollar levels draw traders in.
Some people asked why I bought there, instead of at the exact breakout over Friday’s highs (or Monday’s premarket highs).
3 Reasons to Wait for the Breakout
Check it out…
- CLRO spiked, pulled back to VWAP, and spiked again (that confirmed it could hold VWAP)
- The second move confirmed my thesis that it could break out over premarket highs
- It crossed that key half-dollar level (it’s always good if a breakout lines up with a key psychological level)
Here’s my trade…
Buying there gave me a clear risk level at the premarket high (or VWAP). Also, I knew it could potentially top again where it double topped on Friday.
It was a nice SOLID win to start the week. Most importantly, it reinforced another important rule in today’s market…
Sell Into Strength
CLRO was moving so fast (and was so choppy) that I was happy to sell into strength.
I can’t tell you how often I see new (and experienced) traders refuse to sell into strength because they want more.
Just sell into strength, okay?
Remember, these aren’t swing trades.
If your goal is to grow a small account, then do yourself a favor and follow the rules I’ve outlined in these trades.
Key Takeaway
Every trader I know makes mistakes.
And we all have trades where something happens that’s outside of our control.
But if you follow the rules meticulously, it helps you to stay in the game long enough to get past the learning curve.
THEN you’re on your way to freedom.
Cheers,
Tim Sykes
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