Better Stock Trading by Daryl Guppy

Author:Daryl Guppy
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-10-27T00:00:00+00:00

Using the Profit Dollars at Risk approach gives the trader an effective way to control profit erosion in momentum trades. It also provides a good way to protect open profits in long trend trades, particularly when used in conjunction with other standard trend trading tools and signals. While traders might choose to ignore the Dollars at Risk signal, they have a back-up in a trend trade provided by moving average exit signals.

Good trading suggests we act on the first signal to limit our loss, but practice suggests that we are more likely to use this as a preliminary alert.

SLOW MOVERS

Slow and steady trends carry less risk of sudden trend collapse. Trend identification tools include the Guppy Multiple Moving Average, trailing protect-profit stop loss calculations, moving average crossovers, and other standard indicators such as divergence signals in the Relative Strength Index. All have the potential for improvement when applied alongside a Profit Dollars at Risk calculation.

We use the strong up trend in Malaysian-listed AmCorp in Figure 11.6 as an example to illustrate the impact of these techniques. Trader Success applies the Profit Dollars at Risk strategy, and Trader Average uses the crossover of a 10- and 30-day exponential moving average to signal entry and exit conditions. Both traders start with an entry at $3.55.

Figure 11.6 AmCorp

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