Excerpt from a Kardec Trader YouTube video describing a short-stock risk-management approach. The speaker explains a scaled entry (small initial position then larger add) and a strict exit rule: if the stock reclaims the ‘red to green’ area the short thesis is invalidated and the trader exits entirely. The approach hinges on the stock remaining 'red' after entry.
So that's how I manage risk on these setups. I attack here. What's your stuff? How do you manage risk? What I like to do is I like to risk a reclaim of that red to green area. So if my first initial entry let's say I have 10% of my size here and I go in 100% of my size here so what I will do is if it ends up reclaiming the red to green area cut off that 90%, add that I had added 90% of my size I cut that off and then the rest I'll cut off right here, same place. The problems that occur is that the entire thesis is based on stock going red and staying red. So the moment it reclaims red my trade thesis is no longer valid and I get the hell out. If the trade thesis is based on a stock going red. If the stock goes red and comes back thesis is negated and the trade is over and I wait.
