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Quick Tips For Creating A Trading Plan

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In today’s article I’m gonna talk about tips and tricks for developing, dialing in, and implementing a trading plan.

If you follow any of the podcasts, the AnjayTrade podcast, if you watch any of my recap videos on anjayTrade in our YouTube channel, you’ll hear me say trading plan, trading plan, have a plan. You probably hear me say it so many times you get tired of hearing me say it, but it is so important to have a plan before you enter a trade.

The famous Mike Tyson quote, I love to use it, is

“Everybody has a plan til they get punched in the face.”

But I tell you if you go into a fight without a plan, you’re truly doomed. And really developing this plan with good entries, exits, goals, and stop losses is the golden ticket to really getting consistently profitable over time.

If you’re buying hot tips, if you’re buying off of a newsletter, if you’re following somebody on Twitter, if somebody at the Whole Foods gives you a hot stock tip, you’re never gonna be consistently profitable.

You have to have your own process, your owned dialed-in methodology and plans. So what are the biggest tips to actually creating a trading plan? I’ve got about half a dozen things I look for in these trades and I call it, I talk about this in StocksToTrade Pro all the time, I call it building the case, okay.

I’ll also use pieces of the recipe, because if you’re buying a stock based on one factor, odds of success, you may win, you may lose, but your odds of success are lower.

You wanna put as many factors in your favor as possible, you wanna plan this battle plan out, you want the Air Force with you, you want the Marines with you, you want everybody lined up ready to attack this stock.

So number one to focus on is look for charts that are what we call clean.

So when I say a clean chart, particularly talking about buying a stock, you’re looking for stocks, charts that are breaking out to new levels, not long-term down-trending charts.

In my opinion, and I think many well-respected traders will mirror this opinion, trying to bottom feed, trying to pick beat-down stocks that could bounce is not a consistently profitable strategy. You wanna find strong stocks, stocks that are breaking out, that are on everybody’s scanners.

Those are the ones that are most likely to get more buyers. Number one, clean charts, breakouts, 52-week highs, five-year highs, one-year highs, all-time highs.

Next, look for a catalyst.

We often trade, a lot of us especially day traders, will trade stocks that are just moving for no reason. It happens. It’s not really a consistent strategy if you’re new because you gotta be so quick with your entries and exits and so disciplined with your entries and exits.

If you’re new, looking to develop a strategy, look for stocks with a catalyst. When I say catalyst, it could be many things, it could be a contract win, it could be earnings announcements, we love earnings winners at 52-week highs, could be a partnership with another stock, and then another one that we like is what’s called hot sectors.

At the time we’re writing this articke in late 2020, cannabis stocks, weed stocks, very strong. You get a cannabis stock that has a new product, particularly like a CBD drink, these stocks have been ripping over and over again.

So we got a clean chart, we got a catalyst, the next thing we’re looking for is stocks that have ran in the past.

Mark Twain said it, I think, I reuse this quote a lot, but, “History doesn’t repeat but it rhymes.” And how does that apply to stock trading? Stocks that have ran in the past tend to run again.

So bring up your AnjayToTrade or whatever charting platform you’re on, look at the past. Has this stock made big moves in the past? If it hasn’t, it’s less likely to repeat. It can’t repeat a move it’s never made in the past. You’re reducing your chance that this stock is gonna break out.

So now you’ve got three or four criteria what makes it a good stock, how do you execute a trading plan?

Next you’re gonna look at that daily chart, that one-year one-day chart we talk about all the time, and you’re gonna look for key support and resistance levels on that chart.

Stocks tend to spike, consolidate, and either fail or re-break out. So as you’re looking at that stock that has these criteria we talked about, you wanna buy as that stock breaks to new levels, and then you stop, you take your stop loss, ’cause remember not all trades are gonna be winners, you’re gonna be a loser.

Some of the best baseball players out there get a hit three out of 10 times. Trading, very similar. You gotta manage your losses, take smart losses, so that you can stay in the game. So look to base your risk off those previous support and resistance levels, because you don’t have a trade plan if you don’t have a stop.

If you don’t go into that trade with a stop loss in mind, you’re just gambling, you’re hoping, and hope, just like there’s no crying in baseball, there’s no hope in stock trading.

If you’re hoping for anything, you’re doomed. So now you’ve got your stop determined, you’ve got your entry determined, and then your goal, especially in day trading and swing trading, you’re looking for that three-to-one risk to reward on the chart.

What’s that mean?

If you’re risking 20 cents on your chart, you’re looking to take a reasonable goal of, say, a 60-cent gain. You risk 20 cents to potentially make 60 cents. If you’re risking a dollar on this chart, say, it’s a $10 dollar stock, and you’re risking $9 level, you’re looking to make that $3 profit goal.

So now you’re buying at 10, you’re risking nine, and your goal is 13. In momentum stocks we don’t overstay, we don’t get greedy. There’s all those analogies about getting greedy, hogs make money, pigs get slaughtered, et cetera.

Have realistic expectation, base it off the chart, build the case, and that’s the best way to build a trading plan and get that much closer to being a consistently profitable trader.

Thank you for reading our articles. We really wanna help you learn, grow, and evolve,
and become a consistently profitable trader. We’re proud of the tools we’ve built in AnjayTotrade and wanna help you maximize your success. Be sure to check out the other articles over there.