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I’ve been a subscriber for a couple of months, and I love your strategy and what you’ve been doing. However, I have a question regarding risk management. Why are there times that you deviate from our plan and stay in a trade even when it closes below support?

By Matt McCallSep 07, 2017

Thanks for your kind words! Your question is a good one. Critical support levels are one tool I use to judge the health of a stock’s chart, but they are not the final word on a trade. As you’ve seen, there are situations where other factors that move individual stocks and the overall market need to be taken into consideration.

Once the support level is broken, I need to see a strong likelihood that it will bounce for us to stay with it. I reexamine all of the factors that led to the support break to determine if we need to make any adjustments. This is when I get in touch with my thoughts so you are kept updated on my latest outlook. If the broken support changes our original criteria that identified the stock as a buying opportunity, we will usually look for an opportunity to sell. But if the support was broken due to an outside factor such as the overall market or a geopolitical event, I will recommend holding it as long as the chart and NexGen criteria continue to support it. In those instances, stocks usually bounce back.

One of the advantages of using critical support levels over hard stop-losses is that they give us a defined price to watch but still provide important flexibility to ride out shorter-term bumps and not get caught in panic selling. That way we can eventually find a stronger exit point.

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