Home » Can Less Risk Lead to More Reward?

Can Less Risk Lead to More Reward?

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email

Investors hoping for a bit of trading stability on Wall Street in the days to come should expect to be disappointed yet again today as the market continues to chop around with no real direction.

As recently as this past Monday, the Nasdaq reached official “correction” territory by falling 10% from its high.

For reference, many investors consider a 10% decline from a high a correction and a 20% decline a “bear market.”

Are things a bit uneasy right now? Sure.

But remember back on Dec. 20 when I told you “I would not be upset to see a 10%-20% correction to “reset” the market.”

I believe this move could set up a lot of fresh new opportunities and clear the way for another leg up on this bull market.

Unfortunately, there is no way of knowing when a market will turn around or how much further it has to fall and that’s where the difficulty lies.

That’s why I wanted to keep the plan I’m bringing you today as simple as possible…

A Simple Plan for Steady Trading

That’s why the plan I’m bringing you today is simple

During the ugly times (like right now), we need to trade smaller sizes and just trade far less often.

And when things begin turning around and looking good once again, we can start trading larger sizes and more often again.

Now, as I said on Monday, after a period of heavy selling like we’ve experienced so far in the early days of 2022, it can take a few weeks for stocks to reposition themselves and come back into tight, low-risk ranges where we can buy.

And even after the market calms down, we’ll need to be patient for the market to begin showing some strength again. 

That’s why I think it would be smart to decrease your exposure to the market right now by trading smaller sizes than usual until this market has a chance to calm down.

Still Stalking New Stocks

Now, I’m still stalking a handful of low-risk trades during these volatile times by scanning for stocks with good fundamentals and high relative strength.

Today, I believe I’ve found a stock that meets most of our search criteria, with a good setup on the daily chart and a low-risk entry point.

One of them is Continental Resources, Inc. (CLR)…

 Daily Chart of Continental Resources, Inc. (CLR) — Source: TC2000

Truthfully, Continental Resources, Inc (CLR) is a bit of a “cheat” entry.

Sometimes when taking a cheat entry, I like to go in with half of my usual position size before the breakout is confirmed.

For example, if a full position size is usually 100 shares, I would only take a cheat entry on 50 shares with the stock still under resistance.

Then, when the pattern completes, I will buy the other half at the official entry point.

This way, you have a profit cushion when the stock breaks out, allowing you to finance your stop loss and create a risk-free trade.

The Technical Picture

Presently, CLR stock is forming resistance near the $51 area, which is the level we’ll watch going forward.

And with a stop below the 50-day moving average, you can get into the trade with fairly low risk.

As regular readers know, a moving average (MA) is a stock indicator that is available on almost every charting platform and is a key part of my overall stock strategy.

It is a dynamic line that plots the average price of a security over a given time period.

Traders typically use 50-day and 200-day MAs, but they can be set to pretty much any length of time.

The reason they are useful is that they help to smooth out the day-to-day volatility and show the general trend of a stock or index.

Furthermore, volume is light, the price is compressing and relative strength is turning up into its highs, continuing to make this look like a pretty good setup!

And if the stock completes the “cup-and-handle” pattern going forward, you will have a nice profit cushion to risk on the second tier of the breakout.

Embrace the surge,

Ross Givens

Editor, Stock Surge Daily

Ross Givens
Ross Givens

I bought my first stock when I was 12 years old. It was Microsoft. I’ve been a registered financial advisor. I’ve worked as a stock broker. I ran a managed fund. I was a Vice President at JP Morgan with Series 7, Series 66 and Series 3 securities licenses. I’ve been featured on Fox Business, CNBC, Bloomberg, and a bunch of other networks. The only thing I enjoy more than making money, is helping YOU make money.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Whats in the Article