Once price moves up 2%, I will put on another position and will continue this process until I have a full position established. My initial stop loss after entering the first position is 25% draw down. I will cut a stock loose at that time because I was just plain wrong about it. I initially decide to enter with the understanding that momentum has hit and the price will move up, if I get a 25% draw down on my first position....well, doesn't take a genius to figure this one out. I will not add to my position if it moves down during the initial phase of ownership. My price target for adding to the position doesn't come down with the draw down. I will not add to the position unless and until we get a 2% pop above initial entry price. As price is moving up and I am adding positions, I will then target 20% for the first peeling of of a position to bank some profits. I then start employing a trailing stop of 4 x ATR of 10 periods. This was a rule I adopted from "Trend Following" by Michael W. Covel. This technique has worked very well for me in defining when a trend is done for the short term. With that said, I will jump back in with a position if my monthly trend indicator is still bullish and the weekly/daily momentum indicator turns back to bullish and the stock has not completed 3 legs of up or down moves.
I am a firm believer that stocks move in 3 pushes (or legs) before a prolonged rest or entering a significant reversal. I am not a student of Elliott Wave nor have I seriously studied it. My 3 leg technique evolved from use of my divergence indicator where I observed strong corrections following 3 divergent heads on the indicator (see figure below):
Overbought conditions can stay overbought for a long time, but I have very rarely ever seen it create 4-heads. The 3-heads means that we had 3 legs up to the move. I call it a "3-headed Monster" because it will destroy you if you do not get out of its way when it comes through. The example above with VDC is a current example of just this case. I have scaled the time down to the 120 minute chart below so that the 3 legs and associated consolidation areas are recognizable. The 3-legs peak with the 3-headed monster on the daily divergence indicator I use. I did not look long and hard for this example - they happen all the time, that's why I use them. I just started using this on currency futures and was able to pull out a nice profit on the yen recently. However, I have been using this technique on equities for some time.
There are times when I will not exit the entire position when the 4 x ATR (10) has been hit. This is for "favorites" that are still above the 200 ema and exhibit a long trend on the monthly chart. An example is AAPL (see below).
With that said, I just noticed that I was up 23% on my AAPL position, so I will be selling a partial position in the morning to bank gains. I then plan on buying back that position following earnings if there is a sell off on the news.
AAPL is also a good example of a 3-Headed Monster in the making. The chart below clearly shows this, so peeling off a position at this time is a no-brainer. But, AAPL is a "favorite", so I will be holding it for some time.
In summary:
1. Scale into positions based on fundamental and technical analysis,
2. Place 25% stop of initial position - done if hit, move on,
3. Add to position if it gains 2% from entry and use 4 x ATR (10) for exit of position,
4. Peel off 1 position when gain is 20%,
5. Hold 1 position of "favorites" if price is above 200 ema and monthly indicator is still long even though 4 x ATR was hit.
6. Exit "favorite" position completely if either the monthly indicator turns neutral or short and/or closing price below 200 ema.
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