Should We Take Aggressive Trades?
By Cliff Clark

In the trading room you'll here the moderators say such and such stock is interesting but the trade is aggressive. What they are saying is that the stock has some aspects that make it tradeable but it does have some issues. Not all of the items on the moderators checklist have been checked off. Can we trade these stocks? We can if we have a plan for entering and managing these trades. We also must have validated these plays to make sure we can trade them successfully.

In my plan I define four type of trades:
Safe Trades – These are trades I consider to be very safe and are successful a high percentage of the time. A level 1 gap is an example. These trades can be taken in the pre-market or off the open.
Normal Trades – These are the normal run of the mill trades that present a nice setup and meet all criteria of the trading checklist. These can be taken anytime but usually won't form a pattern for at least 5 minutes into the trading day.
Aggressive Trades – These are trades that don't meet all of the criteria of the checklist but can be played with a set of rules for aggressive trade management.
Scalp Trades – These are trades that I play during the day that base for a long period of time setting up a nice BO or BD. They are taken from a 5 minute chart. This is the only trade type that I shoot for a 1R target and move to break even at the 1/2R.

Safe and normal trades are self explanatory and most of us probably have very similar checklists to manage these types of trades.

For aggressive trades I have instituted some special rules that allow me to take these trades even as others avoid them. Many times they are extended or coming into resistance. I still think these stocks can be played if you have a well defined plan.

For all trade types except scalp trades my plan management is to shoot for 2R targets.
I move to break even after the stock moves 1R.

For all safe and normal trades there must be room on the chart to move at least 2R before encountering resistance of any kind.

Given that, here are some additional rules I use for aggressive trades that have resistance between my 1R and 2R targets.
The stock must be trading higher than normal volume.
The stock must have relative strength to the market.
The stock must have room to move at least 1R before the first resistance level is reached and there must not be any other resistance before 2R.
It's preferred that this is not the first time that this stock has encountered this resistance level, meaning it may have touched it once or twice and is now trying again. If it's been at this level more than three times then I would avoid it since it could be terminally stuck.

This is just one way to play one type of aggressive trade and it works well for me. Depending on your management there are many other types of aggressive trades that you could come up with a plan to trade.

I think with a well defined plan it's fine to play aggressive trades. At times when the market is extremely slow it's almost necessary. Just make sure you have a well defined plan and test it thoroughly. And please don't use my plan above unless you test it for yourself, what works for me may not work you.