Question: "What technical indicators do you use and how do you judge risk?"

As far as technical indicators go, I like to keep it simple. Moving averages, trend lines, and advanced metrics have never been of interest to me. I really do think they just over-complicate things. When I'm reading a chart, I'm just using the very basic support and resistance levels. See the chart below of CVM for an example:

CVM had its morning spike up to a high of $1.25, a level that held as a top for the next three and a half hours. The red line I drew on the chart represents this resistance level. The yellow line represents the level that I believed to be support. Just as $1.25 acted as a top for most of the day, $1.18 was acting as the bottom. $1.18 had several more tests than the $1.25 level did, but it held every time. As the stock was channeling between this $1.25 and $1.18 range, I was prepared to buy if the stock broke past $1.25 or perhaps even short-sell if the stock cracked below $1.18.

Once the $1.25 breakout occurred, I bought CVM and decided to use the previous $1.18 support level as my mental stop loss. A lot of people would use $1.25 as their risk level, expecting the breakout level to hold. I don't do this, as I have seen plenty of successful breakouts that are choppy at first. In my mind, I could give my position a little extra wiggle room, because I believed I would only need to be concerned if that previous $1.18 support level failed.

Let's use this example to talk a little more about how I manage my risk. I frequently am asked "At what % do you cut your loss?" The point I want to make clear is that I don't think like that! I want to play off of the CHART, not some preconceived notion of what a good % stop loss is. So then how do I keep my risk under control? I think in terms of dollars, not percentage.

In this case, I knew the support on the chart that I wanted to risk off of was $1.18. My buy was at exactly $1.25. That meant I was risking $0.07/share. But what if support had been lower? What if I had needed to risk $0.15/share instead? I control my risk by taking different position sizes in each of these situations. If I'm not comfortable taking more than a $1000 loss, then I shouldn't buy more than approximately 14,000 shares when I'm risking $0.07/share. In the hypothetical example where I have to use a wider stop-loss, I must decrease my position size so that I don't lose more than $1000. In this example, I can only buy approximately 6500 shares. See the math below:

$1000 (max loss) / $0.07 (risk) = 14,286 (# of shares you can buy)

$1000 (max loss) / $0.15 (risk) = 6667 (# of shares you can buy)

By thinking in terms of dollars instead of percentages, I allow myself to focus on the chart and use that to guide my decisions. Check out the chart, assess your risk based off of key price levels, and then size in accordingly. Please contact me with any questions!