Comment posted by Chad on 3/25/2008 1:06:00 AM EST
Article: Getting ready for the upcoming earnings season
Hi Pradeep, Thanks for sharing all your wonderful insights. I'm very glad to have found you.
Please tell me, you say on earnings plays you put the stop at the 3 day low or at gap bottom if it's gap up. If the stock gaps up 100% or 200% on earnings day, that means your stop would be at 50% - 66% below your buy price. That seems a lot to me. In those cases would you set a higher stop? How would you handle that?
This kind of question is often the most common question asked . The most critical thing to understand if you want to be profitable in the trading game and survive it in long run is risk management.
The most important section in The Trading Guide is below. If you understand this and internalise this one page it would go long way in managing risk.
How much should you risk on a trade? To manage risk, you should not risk more than 1% of your total equity on a single trade more.