Since it is a volatile stock, we will not lower stops on the core position, but trail stops on some of the rest and tighten fixed stop on another partial. One of the axioms of the ZYX Change method is to not let profits slip away.
This trade illustrates several principals of ZYX Change method. Following are some of the applicable excerpts from a detailed write up:
The premise behind the ZYX Change Method is that the most money with the least risk is made by successfully predicting change before the crowd. The method consists of six screens to be applied in a specific order and trade management guidelines.
Trade management is crucial to making money, especially for the smaller time frame trades. The following are the basic tenents of trade management as called for by The ZYX Change Method.
The ZYX Change Method is equally profitable for very short term and very long term trades. The research at “The Arora Report” shows that risk adjusted returns are maximized by focusing on short term trades during periods of high volatility and longer term trades during periods of low volatility.
Scaling In Entries
The ZYX Change Method calls for scaling in entries. Research at The Arora Report shows that the optimum smallest increment for scaling is about 5% of the full position size. How quickly and in how many increments a trade is scaled in is a function of conviction, volatility, and time frame. The ZYX Change Method will typically look for buying on spikes down as stops placed based on traditional technical analyses by weak longs are taken out and selling on spikes up when stops placed based on traditional technical analysis by weak shorts are taken out.
Scaling Out Exits
The ZYX Change Method calls for scaling out of positions similar to scaling in for entries. Research at The Arora Report has concluded that a proper mixture of scaling out at pre-determined prices and trailing stops produces optimum returns over a long period. The method also calls for never losing more than 20% of a large unrealized gain
Based on technical analysis and quantitative analysis, entry zones, target zones, and stop zones are predetermined before entering a trade. The key points are to scale in or out within the zones and ahead of the crowd.