Sometimes I like to take short term profits too. There is nothing wrong with taking short term profits. I consider short term profits to be from 1 or 2 days to a week. Each person has to develop his or her own rules, but this is what I like to use.

Day One: This little formation is interesting. What do you see? What I see is strong support, a Triple Bottom, that we learned about earlier. This is really strong resistance. The 50% level of the last minor move, as shown on the chart is really close, to close to place an order above the high of the last day, as our Reward/Risk Ratio would not be very good. I want you to think about this. How could we enter long with a lower risk and higher potential reward? 

Here’s how. Remember we talked about entering a trending market in an earlier lesson? Why don’t we do the same thing here? Take the average closing price over the last four days, and enter the market tomorrow at that average price. Just a different slant on what you learned earlier.

For whatever reason, we just want to “Scalp” the market and try and pick up a quick $200 or so, after commissions. Do you see an area that we could use for a profit target? Right, the 50% level of the last minor move. I’m so proud of you because I know you knew the answer to that one before I told you!

Let’s play the chart forward and see what happens on the next chart. Now remember, if our target is hit, we have an exit order already placed to get out with a profit, so it will happen automatically. Also, we have a very tight stop on this trade, and I feel good about such a tight stop because the stop is just under the Triple Bottom support area. Let’s look!

As you can see, our plan worked out just fine. Also notice how well it worked on getting into the market at a good fill price using the Four Day Average. I used the average of the last four days closing price, rather than the last four days lows, since it was not a trending market, it was at the bottom of a major support area.

Just another way to use the average price to enter a market. We also had our exit order in place at the same time we entered the market, and exited with our expected profit of just over $200, after commissions. This is a great way to build a small account. 

I hope you enjoyed this little lesson.
David Duty, CTA