For new postitions aka fresh money buys I employ a logical bottom up position sizing technique based on the real support and resistance levels of the respective stock chart. Once a stock is a winner (trading above my desired risk multiple) I set protection trailing stops. Such stops are not to be confused with trailing stops. A normal trailing stop would be placed in a way to avoid shakeouts at a nearby support level with the idea to realize profits.
I DON’T DO THAT!
What I do with winning teade is, I place a PROTECTION STOP further down the chart. Then I go on and handle my trades the normal way, selling on sell signals and scaling out into strength. The sole purpose of the protection stop is to protect me against a intraday flash crash. I experienced two of them already during my decade in the market and trust me, you don’t want one of them to hit the markets when you are away from your screen. To ensure that I get filled on my protection stop I actually place them right above support to get filled before the crowd who place stops below or at support.
Recall that I don’t add to positions in the classical sense. I wait until a stock flashed a proper setup and then I pull the trigger and fill the size up to my regular position size limit if I scaled-out before. However I am reviewing this technique right now and I explore a procedure where I add a normal position including a new stop even when I already have a position in the stock. I would then exit this position when the stop is hit but keep the early position alive. Goal is to sit tight in core positions over months or even years. I will keep you guys posted.