Trade It: Entries, Size, Exits

This lesson turns S1 to S3 into rules. They are a starting framework to test on paper first, not guaranteed methods.

1. Three setups

A. Base breakout. The stock has been basing under a resistance level for weeks, with high short interest. Trigger: a five-minute close above resistance with relative volume of 3 or more. Stop: back below the breakout level, not an arbitrary percentage. Resistance logic is in Support and Resistance and breakout failure is in Breakout Trading Stocks.

B. First pullback in an active move. After the first impulse day, the price pulls back toward the breakout level or VWAP and holds. Entry on a reclaim with volume. Stop below the pullback low. VWAP behaviour is in VWAP and Intraday Anchors.

C. Defined-risk starter before a catalyst. If the catalyst is dated (earnings, a vote, a decision), a small call spread caps the loss at the debit you paid. If the stock is below the lower strike at expiry, the whole debit is gone. It gives up some upside to remove the gap-through-stop problem. Learn the structure first in Vertical Spreads and Earnings and Catalyst Trading.

2. What not to do

• Do not buy a vertical, extended candle.
• Do not use market orders.
• Do not add to a loser.
• Do not short the top on a hunch. Shorting a squeeze has unlimited risk and is covered in Short Selling and Short Squeeze Mechanics.

3. Size smaller than normal

Use 0.25% to 0.5% of the account per squeeze trade, and cap total squeeze risk across all open trades at about 1% to 1.5%. The smaller number is because gaps and halts make losses bigger than the plan.

Worked example. $25,000 account, 0.5% risk = $125. Entry $12.00, stop $10.80, risk $1.20 per share, 104 shares ($1,248 position). If the first target is $13.80 (+$1.80, 1.5R), a third of the position (35 shares) earns about $63. Adding the other thirds on the way up is where a good squeeze pays; losing the stop is a $125 loss, or more if gapped.

4. Exits: scale out into strength

1. Sell the first third at 1.5R to 2R. This recovers part of the risk and lets the rest run with less pressure.
2. Sell the second third into the first extension, or after the first strong climax candle.
3. Trail the remaining third with a rule written in advance: prior bar low, a short moving average, or a multiple of ATR. See ATR-Based Position Sizing.
4. Time stop: if the stock has not followed through in a few sessions, exit.

Signs of exhaustion. Price far above VWAP and the short moving averages. A huge volume bar with a long upper wick. Repeated halts. Offering news. A falling borrow fee, which suggests shorts have already covered.

Nobody rings a bell at the top. Selling too early is a better problem than selling too late.

5. The one-page checklist

• ☐Clears at least three of the four gates in S1 (SI 20%+ of float, CTB 50%+, utilization 90%+, dated catalyst inside two weeks), the dated catalyst is one of them, and the name scores 8 or more on the S2 scorecard.
• ☐Data verified from two sources.
• ☐No offering, shelf or convertible overhang.
• ☐Thesis, trigger, invalidation, size, exit written down.
• ☐Risk at or below 0.5% of the account.
• ☐Limit orders only.
• ☐Scale-out levels and trailing rule set before entry.
• ☐Trade logged for review. See Trading Journals and Performance Metrics.

Key Takeaways