Question on Risk and Exits

[WonderMellon 0]

Brand new here (second day) 

I have a question on risk management and exiting positions.   Guidelines say to take a position size based on your risk level and then follow the exit strategy based on your plan.  1R all or nothing, 2R all or nothing, 25% at 0.5R, etc. 

What I see in the You Tube recaps and when viewing the screen share is an initial purchase and then almost immediate scaling out over 5, 10, 15 executions or more.   The only way I can see that strategy working would be to take a massive position initially and then scaling down quickly to a more meaningful risk level until you finally exit the position at break even or at a higher level.  

I am asking out of curiosity, not criticism, as I don't really understand the trade management.  

 

Thanks for any insight you can provide

[cjsimon07 16]

I assume you're talking about Andrew's youtube recaps? If so, I believe hes' taking 10% partials on very large positions size. Probably not where you want to start as a new trader. 

Risk, entry and exit points really depend on you. Your strategy, your psychology, your plan... You do not have to go all out at 1r, 2r. You can partial any way you want. You should plan your trade before you enter it. What is your risk? Where is your stop loss? How many shares can you take based on your stop loss, risk and entry point? Where are you going to take your first partial? How big is your first partial? Where and what size are you going to take additional partials? When do you move your stop to break even? Do you move your stop higher than break even? You should know the answer to all of these questions before you enter a trade, so you can calmly manage the trade once you enter.  

For example, let's say you're trading a reversal pattern. You enter the trade when you get your entry signal and take the appropriate number of shares based on the risk you have set. Let's say you are willing to risk $25 per trade. The stock your watching makes a hammer candle and you plan to enter if the next candle opens and moves higher. If the bottom wick of the hammer is your stop loss, say $99.75 and your entry is the break of $100 you have a .25 risk so you can take 100 shares to risk $25 on the trade. You enter the trade and plan to sell 50 shares at 100.50. That would be a 2:1 risk/reward. Say the trade goes your way. You take half off at $100.50. Now you have a realized gain of $25 or 1r and you still have half your share size left. Now you move your stop to break even at $100, so no matter what happens you won't let a winning trade turn red. Now you partial according to your plan. Say 20% partials at each level or whole/half dollar amount. The trade continues in your direction hitting 101. You take another 10 shares off. It moves up a little higher then pulls back below 100. You take another 10 shares off when the next 1 minute candle sets a new low. This is just a pullback and the trade moves back in your direction. You take another 10 shares off at VWAP, then another 10 at $101.50. Now you have 10 shares left. The trade seems to be running out of steam. Buyers are not coming in to move the price higher, so you move your stop just below VWAP. The price falls and stop you out.

That's just an example. I know it's a lot, but hopefully that makes sense. Basically, you have to figure out what you are comfortable trading based on your strategy. It sounds cliche, but plan your trade then trade your plan.