How I Add To A Swing Trade
StatsEdgeTrading
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Robinhood Trade Analysis Last week, we analyzed Robinhood, discussing the anchored VWAP from its IPO date. Despite breaking above this level, indicating a shift from negative to positive sentiment since the IPO, the stock hasn't sustained significant gains. This scenario was akin to what we saw with meme stocks like GameStop and AMC—where many unfortunately faced losses. My strategy differs fundamentally from the speculative plays that led to those losses.
The Premise Behind the Trade The rationale for focusing on Robinhood was its potential benefit from the high trading volume on meme stocks, irrespective of the direction those stocks took. The strategy was not just about entering the trade but knowing when to exit or add to the position under the right circumstances.
Adding to Trades: My Rules
Avoid Averaging Down: I strictly avoid the common pitfall of averaging down on losing trades. As legendary trader Paul Tudor Jones famously had on his monitor, "Losers average losers." My approach is to average into winners, not losers.
Scenario for Adding: Let's use a simplified example to illustrate my approach. Suppose I initially bought Robinhood at $20 per share, setting a stop loss at $18, thus risking $2 per share. If the stock dips to a new support level and bounces back, showing strength, and the risk now reduces to $1 per share from the new entry point, I can justify doubling my position. This way, I maintain my original risk amount but increase the potential upside.
Recent Trade Update In the case of Robinhood, after a brief rally and a subsequent pullback, the stock found support, presenting an opportunity to add to my position. This adjustment was based on a new, higher stop-loss level, which allowed me to increase my exposure while maintaining the same risk level.
Final Thoughts on Managing Trades The key takeaway from this trading strategy is to add to positions when the market provides confirmation and better risk/reward scenarios, not merely to lower the average cost of a losing position. As we move forward, I aim to refine these strategies and share more detailed analysis through my Substack.
Thank you Michael! Would you have any advice on which timeframe is best for confirming a breakout? I tried to make this play as it passed 20.50 but ended up getting stopped out as it dropped back below. I perhaps also placed to tight a stop loss, but trying to manage risk in these days. But in this case I was looking at daily chart for the level then into 5 min for an entry.
Kind regards,
Pablo
Thank you!