After the Trade is Executed

Once the trade is executed, the exit orders are placed. The profit order – a sell limit order is placed at a price that is 7% above the
entry price. The capital preservation order – a sell stop (stop limit) order is placed at
4% below the entry price OR 6 cents below the low of the day that was
used for the trade (whichever is higher) – for a stock that opened without a
gap the previous day sets the prices; for a stock that opened with a gap, the
price action before the day (high and low) sets the prices.

As with when to trade and how to enter, the following day’s activity depends on
whether the stock gaps up/down or not. If the stock price doesn’t gap up or down,
the stop loss is changed based on the previous day’s prices. If the stock gaps up or
down, the stop loss is changed based on the current day’s prices. Whether based
on the previous day’s prices or the current day’s prices, stop loss rule is the same. When the stock opens within 50 cents ($0.50) of the previous day’s
close – if 6 cents below the previous day’s low is higher than yesterday’s
stop loss, raise the stop loss to this new price. This is known as raising the
trailing stop, which further limits the downside risk. When the stock gaps up or down 50 cents or more – wait 30 minutes
for a gap down or 5 minutes for a gap up – if 6 cents below the today’s
low is higher than yesterday’s stop loss, raise the stop loss to this new
price.