Wall Street Strategies
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WStreet Trading Guidelines
  • If you need help, ask for it.
  • Observe the buy limit.
  • Don't buy gap openings that pass the buy limit.
  • Use stop loss orders for trading ideas and as flags for re-evaluating long term ideas.
  • Always follow a position up with a trailing stop, making sure to take into account the volatility factor of the underlying position.
  • Try not to let winners become losers, but also don't forsake long-term gains to preserve marginal "wins". Swing traders should be happy with quick gains and understand that positions that are scalped in a effort to avoid them from becoming paper losses could go on to become substantial winners over time. Longer term investing often requires having faith in the underlying reasons for originally initiating the position as that faith will be tested from time to time by paper losses. Parameters for exiting a position depends on the reasoning (technical versus fundamental) and time horizons established at the onset of initiating that position.
  • Check back frequently for Trading Alerts.
  • Scale, or average, into and out of positions.
  • Watch volume at key points like stops for confirmation.
  • Develop a money management strategy that fits your risk tolerance and account.

If you need help, ask for it.

We are here to help you, it's our business. Ask for help before you are in a serious predicament, it's easier on both of us. For questions about recommendations you have several communication channels open to you. Your primary point of contact is your personal representative. For trading questions you can call Nikki in our recommendation database department at 212-622-7555. You can also email the ResearchDesk@wstreet.com if your rep is unavailable. For questions about your account please use info@wstreet.com.

Buy Limits

Nothing goes straight up or straight down. If a stock passes the recommended buy limit, don't chase it. If you miss a trade, there is always another coming right up. Often times it will come back and give you a second chance to enter. Chasing stocks up destroys the risk/reward ratio and can leave you holding the bag.

Trading Gap Openings

A gap is created when the opening price is higher than the closing price on the previous day. If you are looking to buy a stock on the open and it gaps past the buy limit, be patient and wait for a pullback to enter. Gap openings are most often traps and patience will provide a far superior entry for a long position.

Stop Loss Orders

We suggest that on most of your positions you employ a stop-loss or buy-loss. Anyone can make a wrong selection in the stock market. When this happens, it is important to adopt a defensive posture: sell (or cover) for a loss. Remember that no one establishes a position to lose money; preservation of capital is paramount. The best stop orders are mental. A hard stop (a stop limit or stop market order that you place in your trading account) resting in the market is visible to specialists and market makers and is likely to be triggered. If you can't watch your positions a hard stop is better than no stop, but in volatile issues you can have unpleasant results using hard stops. Use common sense on determining stops for your positions. We almost always suggest a stop. If your entry price is substantially higher or lower than the price at the time of recommendation you should adjust your stop accordingly. We use wide stops on volatile stocks; this is because frequently traders will stop out only to have the recommendation go up without them. Common sense is a big help here; if the stop is past your pain threshold, try a smaller position to reduce your risk.

Using Trailing Stops

Protect your profits. Plain and simple. As a position moves in your favor raise your stop to lock in profits. Many stocks that are the most profitable to trade move through extreme ranges. In some cases a trailing stop based on percentage may be more useful or use a trailing stop based on points. For instance, you are in ZYX at 100 and you are using a 5% trailing stop. Initially your stop is 95 and you move it up as the price increases. When ZYX has reached 110 your stop is now 104 . Use this simple practice and NEVER LET A WINNER BECOME A LOSER. Use your cost as a stop once a position moves in your favor. Remember you can always re-establish a position in a stock. Be prepared to exit positions that continue to fail at key resistance and support points. If a stock loses momentum, before it reaches our target we may close the position to secure a profit before it vanishes.

Alerts

WStreet.com is dedicated to closing the communication loop on each recommendation. We have a comprehensive alert system that enables us to make you aware of changes to our recommendations. Please check back frequently for alerts on positions you may be in. Alerts inform you when it is time to adjust your stop, take profits or make changes to your position.

Averaging or Scaling In and Out of Positions

This is one of the simplest and most productive ways to improve your trading profitability. How often have you sold a position and then watched the stock run on without you? How often have you established a position then averaged down? Use this concept proactively. Build positions as they move in your favor and scale out of them as you book profits. Sell a portion of your position to lock in some profits and raise your stop to protect the remainder at your first target. Even holding a very small position of a home run is extremely rewarding. Ride your winners. Also, if you are building a position in a stock that is consolidating consider doing it in several pieces. This will get you in the stock and keep it on your radar screen while you build a beneficial average cost, then put the last piece on when it breaks out and starts to go in your favor.

Volume Confirmation

Volume confirms price action. When light volume accompanies price action it represents a divergence. Frequently at low volume times of day, like lunchtime, market makers and specialist will gun stops. Hard stops (stop sell or buy orders resting in the market) are visible to specialists and market makers and they tend to collect at obvious places like round numbers and moving averages. Specialists get paid for order flow. So when they can, they will whip prices to set off those stops. If you are considering stopping out of a position, observe the volume, the overall market conditions and the time of day. Learn how the game is played and keep your stops mental when you can. Don't get suckered by low volume sell offs.

Selling Into Strength

Don't try to pick the absolute top or bottom of a move. It is a very expensive practice. Sell into strength. If you are greedy and try to wait for the absolute top you will find yourself chasing the stock down.

Account Management

There are a variety of factors to consider when you make a account management plan. Don't fool yourself; this is essential to being a profitable trader.

  • Account size- Different size accounts must be managed differently. Very small accounts can be quite useful but require different tactics than large ones.
  • Risk reward ratio- Statistically the ratio of your possible upside on a trade as opposed to potential downside must be stacked in your favor to come out ahead over time and a large number of trades.
  • Position size- you should vary your position size based on a number of factors including volatility, account size, number of open positions, and liquidity of the issue. A large account can be divided among 12 or more positions effectively while a smaller account may only be effective in 5 positions. You should not put more than 20% of your buying power into any one position.

There are many good books to read on this topic and it is a MUST to thoroughly understand and develop a money management plan tailored to your individual account, goals and temperament. There is no one size fits all solution.

Volatility

Always consider the volatility of the stock you are buying. For instance, AAPL, GOOG and IBM are all big liquid stocks that can be very profitable and relatively easy to establish a large position in. Some of the most profitable trades are thinner issues that swing through very large intraday ranges and are not as easy to get in and out of. Vary your position size and use scaling to your advantage. If you hold a smaller initial position and build it, volatility won't have you panicking out of a position. The key here is to be consistent and unemotional.

Panic situations

Panic can occur in the market for a number of reasons. It is important to stand aside from the crowd and not be drawn into the mass hysteria. There is almost always a secondary reaction to any major event that offers a more thoughtful and profitable entry or exit. Volume is your key piece of information here; huge volume accompanies buying and selling climaxes. If you are holding a stock that gaps or runs through your stop, you will likely have a chance to exit at a more favorable price on the "dead cat bounce" or secondary reaction. Remain unemotional and evaluate the situation realistically.

Percentage Moves

If you buy a $150 name and it moves 15 points, that is a huge winner, right? What if you buy a $20 name and it moves 2 points? It is the same 10% move. Think about it and manage your expectations and positions accordingly.

Options

Options as the only way to play the market is the ultimate sucker's game. You could make money 5 trades in a row and lose it all in one losing trade. Having said that, there are times when we advocate buying options as long as the risks are acknowledged. Those times are mostly in volatile trading situations (think financials and airlines) where the upside could be huge in a very short period of time. Again, whenever there is huge upside there is also huge downside, too. For the most part our subscribers have demanded options so we present the option idea we think is best based on valuation and risk. We take into account premiums for the strike price. As a general rule, we like to stay in or near the money and not go out too far. Remember the Hotline ideas are designed to be held for up to three to six months so the options have to be able to benefit during that time horizon, as well. When you are ready to go to the next level the best thing to learn is how to write options, this is great especially in these volatile markets.

Futures and Credit Markets

Be aware of the index futures and Treasury bonds. Don't trade against the direction of the S&P and Nasdaq futures. There are free quotes available for the index futures on the Chicago Mercantile Exchange website. Market leadership changes continually and you should be in touch with the driving forces and aware of divergences. Are the bonds rallying? Are the futures locked limit down? Don't trade in a vacuum.

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