Week 3 - Trading Plan
I have been watching a trading course all week which has really developed my understanding on how a stock price moves. I am watching each video closely and taking notes and have finally come up with a rough trading plan that I will try to follow. I have not finished the course yet so I will continue to improve my plan before I start trading.
Trade setup checklist:
- Analyse the charts using a top down approach to understand the key supply and demand/support and resistant zones and recognise the general trend of the stock.
- Find the 3 highest probability rate chart patterns and only enter trades which show these. I believe these patterns are head and shoulders, rectangle patterns and triple bottoms. Of course all of these patterns can be flipped and they have a similar probability rate so I technically have 6 chart patterns to look out for. These might change with more research...
- Before executing a trade make I need to make sure there is a clear spike in volume. This provides more evidence that a large change in price is about to happen.
- Check the sentiment of the stock and the general market and make sure the direction you are trading corresponds to this. If the sentiment is 50/50 or is swaying in the opposite direction to your trade then the likelihood of the trade being a success is lessened.
- Before entering a trade make sure the risk to reward factor is at least 1:2 so if I enter a trade and I risk £10, I want to exit the trade at at least £20. Also make sure to trade with an appropriate lot size as I only want to risk 1 - 3% of my account each trade. This point doesn't deserve a number because it is common sense.