In the last 9 Tips, we have discussed the prospecting power of OmniTrader and looked at how to configure the program to find the trade candidates you desire. However, as any trader knows, finding good trade candidates is only part of the battle. Trade Management is as important as any other part of the trading process. In OmniTrader, there are tools to help you manage a trade, but in this lesson we will also discuss some general points of Trade Management Theory.

Managing a Trade with OmniTrader
In the Trades Mode of OmniTrader, our SignalWatch Team will execute trades on a daily basis. Each time we decide on a trade candidate, we also decide on the entry price, our profit target and our loss stop. By engaging in this process, we are able to calculate a Reward: Risk ratio for each trade. The Reward: Risk ratio is calculated dividing the potential gain by the potential loss. Our team is looking for at least a 3:1 ratio on all trades.
Let's look at the example for the Short Trade on SIAL to the right. Our Reward: Risk ratio is 4.5 on this trade. How did we decide on the entry, target and stop loss levels? By the chart. This stock turned back into it's range on a volume climax. Our entry level was decided on as the point where the upward trendline is sufficiently penetrated. Our profit target is merely the support level at 44, and our stop loss is set in the resistance zone, but tightened since a move to 49.5 after hitting the entry price would indicate that our reasons for entering the trade are no longer valid. In OmniTrader, we can use the Stops to set our profit targets and loss stops. For our example, let's set the stops for SIAL. First, we need to chart the security. Once the chart is displayed, click on the short position icon and we can enter the trade. Once the trade is entered, you will see icons on the left of your chart to set your loss stop and profit target. Simply click on the stop and move it to your desired level. The chart below shows SIAL with the stop levels we discussed earlier.

Once the price of the security has penetrated a stop level, OmniTrader will take you out of the trade in your OT portfolio and display a message to inform you of the action taken. Note: the levels set and the exits executed are in your OmniTrader software only. You must set these levels with your broker as well to have action executed on the actual trade.

Many people choose to use a trailing loss stop on their trades. In OmniTrader, you can adjust the stop levels as the security price changes. I would recommend Game Mode as an excellent training tool in setting stop levels. Go through a few game sessions a day and practice establishing stop levels. If you are setting your stops too tight or too loose, Game Mode is good way to find out (and less expensive than the market letting you know!).

Frequently Asked Questions

Q: Will the Trade Management Tools in OmniTrader ever be integrated with an online broker?

A: Yes. We are currently working on direct integration with online brokers. We hope to have this feature added in the near future. This would allow any level adjustments or trade entry/exits to be broadcast to a broker as you make the changes in OmniTrader.

Q: When I first enter the trade in OT, are the levels where the stops initially appear the recommended levels?

A: No. The stops have to appear somewhere for you to access them, but where they initially appear is definitely not a recommendation by the program.

Q: My broker only allows me to set one stop - either a profit target or a loss stop. Which one should I choose?

A: A popular question, and we would recommend to always choose the loss stop. Making money in the markets depends on cutting losses and maximizing profits. While the optimal situation would allow to set both stops, a stock that runs through your profit target is a preferred situation to a stock that runs through your loss stop!

Q: Can you recommend any materials on trade management?

A: There are many books written on technical analysis, but a surprisingly small percentage deal with trade management. However, here a few that could help you: Market Wizards and The New Market Wizards by Jack Schwager, Profit Strategies: Unlocking Trading Performance with Money Management by David Stendhal, Targeting Profitable Entry and Exit Points by Alan Farley (video), Quantitative Trading & Money Management: A Guide to Risk Analysis & Trading by Fred Gehm and Market Trading Tactics: Beating the Odds Through Technical Analysis and Money Management by Daryl Guppy. Of course real time examples are nice, and the Trades Mode of your OmniTrader is an excellent tool to allow you to see our Signal Watch team use chart patterns in trade management on a daily basis.

We hope that these tips have been helpful to your understanding of OmniTrader and trading in general. Best of luck with all of your trades in the future, and let Nirvana Systems know if we can help you in any way.

Jeff Drake
Director of Education
Nirvana Systems