Gamestop $GME has got to be one of the most interesting shares of the year so far. I bought in after the rally at $90 and it’s now recovered to $63.77 a 19% rise from its low at around $57.99. This post is one of the ways I make money from big rallies.
However, I will point out right now that $GME I’m holding on a matter of principle. Although I will in the long term make a profit from this trade. When the high street returns so will Gamestop and its fans will be there for it.
But how do you trade a big rally or drop in a market like Gamestop?
Stop losses always feel like a negative thing. You set your stop to close the trade when it goes so far below the price you bought at you no longer stay in. In fact, on shares and crypto purchases (NOT TRADING, TRADING is different), holding the commodity or currency is just a matter of sheer doggedness, if you own 1 bitcoin when its worth £1 and hold it when it drops to £0.50 you will benefit from it getting to £30000.
The secret here is to use a stop loss. Something my robot uses when trading forex currencies. But I don’t use with trades/crypto holds. Unless there is a sudden rally.
A stop loss is a line in the sand, so to speak, that you set on your trading account saying that when the price hits that price you will close the trade, losing money, but restricting your losses (as opposed to a take profit which says when the stock reaches a price in profit close then, I never use take profits on shares but move my stop).
The problem with big rallies is pretty simple. When they go up fast they may pull down fast as well, but I don’t want to reduce my shareholding and then regret it when the price moves even higher. But how do you know when it’s going to stop?
I always say that getting good entries in markets using things like MACD is not actually that difficult. However, knowing when to quit a trade can be far harder. Human emotion sets in, greed, impatience can all affect you. However, this is why I use the stop loss in a sudden move like Gamestop (note I did not use it on this trade but I do on trades in forex and other stocks).
So here’s how to trade using your stop loss in a sudden or slow rally.
Move your stop loss behind the price, even when it’s in profit. Not many people know you can “reserve” profit by moving the stop loss behind price. Some people call this a trailing stop and some platforms can do it automatically.
For example. Let’s say you bought 1000 shares of XYZ Corp at £1 per share.
A day later some news comes out and the price rallies to £2.50 a share, I would move my stop to +£2.00 (depending on how fast it’s moving), you need to leave space for the share to move up and down, all markets bounce up and down especially on news. News normally will not really affect a market long term, as it has no volume.
A day later it is still rallying like mad up to £3.00 a share, my stop is moved to £2.50, then here comes a correction, the price drops as suddenly as it went up to £1.00 a share. But wait, because I have a stop at £2.50 my shares are automatically sold and I make a big profit out of the rally, looking to buy back in at the low dip.
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