Stock Trading Planning

Money Growers PH shares how to plan your trades in stock trading

• set entry point
• set sell point
• set stop loss or stop profit
• risk computation (risk reward ratio of 2:1)
• portfolio allocation
• potential reward

He first draws a line on the chart for the lines of support and lines of resistance. Buy on support, sell on resistance

Chris Cruz shares his reasons for buying

• Uptrend
• Old resistance becomes support
• Fibonacci 23.5%
• MA 20 support

Abraham Avila Jr of Abs Trading shares

What's a trading plan?

Trading plan helps you to organize your thoughts and takes the emotion of the stock trading

Structure of set of guidelines, define your trading activity, and what and when and how to trade

Why create a trading plan?

manages your risk better

streamline decision making

helps you enter and exit based on strategy and not emotion

maintain disciple

How to develop a trading plan?

Answer the 7 questions

1. what markets are you trading?

- US market? Futures? Crypto currency? Commodities? Stocks or Equities?

- mastery or focus; pick one market then once mastered that's when you pick another. There is also a saying not to limit to once income vehicle

2. what time frame?

- as newbie, focus on one thing. Pick on the set-up most suitable to you. Position trading? Momentum trading?

- as a newbie, master daily candle or daily time frame for now

3. how much are you risking one each trade?

- risk first before profit; how much are you willing to loss to lose?

- started with 25,000; newbies advised to risk at 5 digit amount to as much as 100,000

- biggest lost placed at 2,000

4. What are the conditions of your trading set-up?

- what are the criteria to enter a stock

5. How will you enter your trade?

- breakout? retracement? pullback?

6. Where is your stop loss?

- 5%? Break of resistance?

7. Where is your profit target?

What markets are you trading?

PSE Market capitalization

Blue chip (top 10 companies): Investors; mabagal ang returns

2nd liners (good fundamentals): Investors/ Traders;

3rd liners (Basura stocks): Traders

What is your time frame

Position trader:

- look at big picture--weekly

- Entry/ Exit--daily

Swing trader:

- look at big picture--daily

- Entry/Exit--intraday (minute chart/5 or 15 

Day trader

- Entry/Exit: intraday

How much as you risking on each trade?

Risk should no more than -1% of total portfolio per trade e.g. 100K portfolio lose only 1K

Position sizing and allocation. Avoid buying a lot of varied stocks with low volume.

Buy 8,000 per share to save on transaction fees

Risk Reward ratio 1:2 or better

What are the conditions of your trading setup? Parameters

downtrend? range? uptrend?

Range trend better for experienced trader; buy on support sell on resistance

Uptrend: you just enjoy the ride; recommended (trend or swing) for newbies

Downtrend: avoid for newbies; may be done by experienced traders with success

If price > 20 MA >50 MA > 100 MA then the trend is bullish; AOTS by ZeeFreaks

How will you enter your trade? Triggers

buy on support, sell on resistance

buy on breakout: recommended

buy on retracement

if trend is bullish, then identify the resistance where price could breakout to

if price break the resistance at near end of day, enter an allocation 50% max of total accounts

Where is your stop loss?

If price return back below the previous resistance or reached -3% to -5% loss then cut loss

Where is your profit target?

If price snaps the 20 MA, then take profit

Sample Trading Plan

Trade setup: breakout play

Trade objective: trend following

Primary Criteria

- prior consolidation

- breakout of resistance of the consolidation

- volume spike

Secondary criteria

- longest range in the past 10 days or 2 weeks

- new 2 month price high

- price closed above the upper 50% of the day's range or better

Indicators

- AOTS

- RSI 71

- MACD crossover

Abs Trading checklist for Breakout Play (old study)

AOTS
Breakout of resistance

Supply and demand

Prior consolidation

Longest range in the past 10 days

Price closed above pivot point of the day's range 50%+

RSI above 70

How to Backtest Stock and Bounce Play

Why we need to back test stock?
Jack Angel shares: To know the support and resistance and to know when to buy or sell.

Why we need to back test?
Belle Layos shares

• learned about bounce trading first (from Money Growers PH)
• reference: ZF's Bounce  Plays 101, Kapitan Kidlat's 3 days to Kill, 
• back test to test mastery and trade setup
• backtest tools Excel to input data and Word to see charts

Belle Layos setup for bounce play

• previously trending with parabolic move
• 3 day declining rule
• previous Darvas must act as support
• Use Fibonacci retracement with bounce in 38.2%, 50% and 61.8% (From Jason Cam)
• Candle should not close below retracement
• Should have reversal signs like doji or weak candles
• Drying volume, should dry up
• Sell on the 3rd day of bounce

Then on an Excel table, she has the following columns

• Count on how many of the above criteria has been met
• Name of stock/ symbol of stock
• Date
• bounce point
• Fibonacci
• Previous candle
• Volume
• RSI
• AOTS (Alignment of the starts)
• Price as to Moving Averages e.g. below MA 20
• Bounce? Yes or No?
• Resistance
• Number of candles on bounce

Stock Trader's Tool and Set-up

ZF shares
On trading tools commonly used:

• Moving Averages (MAs), 
• Darvas Box Method, 
• Fibonacci 
• RSI (Relative Strength Index)

On buying and timing

• buy in tranches - 3 tranches to be exact : Before, During, and After breakout point.The tranches can be done in weeks, several days or all in one day. 
• The safest to buy is during the matching or run-off at 3:15-3:20 PM since at that point, the possibility of a whipsaw is close to none.
• If you're an active trader, probably 2-5 times a week. 
• If you like to diversify and do low volume trades, then you can do 5 trades a week. 
• A Trend follower can trade once every month or even 2 months

Fibonacci and Breakouts

Yggrasil shares how he spent 10-15 hours a day trying to learn stock trading. I have the same story. I am learning from the sidelines. Learning from the free stuff and then I got hold of the Blueprint. It has enlightened me greatly of the ways of stock trading.

ZF shares on the interpretation of Fibonacci retracements

• as long as FIBO is 38.% and above, bull territory (more money)
• between 38-50 is bullish bias
• between 61-50 is bearish territory: dumping or accumulating time
• 61.8-76.4% is last chance area; possible bounce play
• below 76.4% is death zone

Rayner Teo shares how to trade on breakout

• breakout with buildup: buildup he means a period of sideways trend
• higher lows into resistance or ascending triangle on trendlines (price going up)
• lower highs into support of descending triangles on trendlines (price going down)
• re-test where he illustrates when the previous support because the new resistance

Trading 212 shares on how to trade on breakout

• breakout means price moves and closes ABOVE resistance levels ad BELOW support levels
• trade range: support + resistance levels
• enter on actual breakout
• pre-set level before the breakout at previous high
• enter when candle closes above the trade range
• false breakout: when price breaks support and resistance and return back to trading range

Here is tutorial on trading retracements by Trading 212

Stop Signs and End of Trails

This post continues on how to set trail stops and when to sell. The aim of which is to avoid loss.

Rayner Teo, a Singaporean independent trader, shares on 5 stop loss techniques

• moving average: exit your position when price closes below 20 SMA
• martket structure: exit when swing low is hit
• percentage: exit with 10% change in  high is hit
• average true range: 5 ATR from the lows; slash chandelier stop
• Previous candle: trail based on the previous candle high or low

MoneyGrowers shares how to set stop loss; it is based on trade objective: momentum or bounce

• for momentum play, place stop loss at confluence of support (read below)
• bearish engulfing candle signals potential sell; the opposite bullish engulfing candle signals potential buy 
• if prices glide in 20 MA, momentum might build up

RKay shares places to place an stop loss

• recent swing high
• recent swing low

ZF shares

• During parabolic runs, hold until candle goes below the previous days's closing price
• Buy on Breakout and Set Trailing Stops
• 3rd day red candle with gap (abadoned baby sign)
• FastK at buy levels with RSI at 53 *on sample chart analysis
• It is also common to set trail stop at previous green candle or moving average or retracement

RKay shares about confluence Confluence Trading Price Action Techniques

• Confluence:  two or more levels  come together at a certain point on your chart 
• It can be a a trendline coming together at at 61.8% or 50% fibonacci level
• it can be a support level meeting a rising trendline
• it can be a Fibonacci level meeting a support level where price meet

RKay shares further that there are 4 areas or levels confluence trading can happen

1. support levels
2. resistance levels
3. fibonacci levels
4. trendlines

Bounce Balls and Stock Trading

Bounce play or buy a bounce is buying/ selling stocks to profit from temporary price reversal during price corrections. These are short term trades. Bounce play does not affect the direction of the larger trend.

David Jones of Trading 212 tells about Fibonacci retracements

Lifted from Investopedia

• Traders who "buy a bounce" attempt to profit from a short-term correction or "bounce" off of the identified support.

Steps shared by MoneyGrowers

• find a beaten up stock
• plot the Fibonacci
• let the market do its work
• choose your tools: there are other tools used for bounce plays

Metatrader 4.0 shares how to correctly draw the Fibonacci Retracement

• the top of a downtrend or the bottom of an uptrend is the starting point

Trading 212 shares show to trade Fibonacci Retracement

When to enter in upward trend? After price goes down then price increases and reaches 50% and this goes on in the next 2 days, buy on 3rd day

When to enter in downward trend? When price  goes up to 50%, buy.

Exit strategy

• Stop loss
• upward trend: place stop loss just below support
• downward trend: place stop loss just above resistance
• Target profit: using Fibonacci extension

Notes from ZF

• 3rd day rule:  take profit on the 3rd day of a stock's ascent or buy a stock on its 3rd day decline
• 61.8% and 76.4% Retracements would be the ideal crash-point for pickup
• As long as 38% Fibo holds, expect your money to make MORE money.
• The best candles to watch for when playing the bounce are
•  the abandoned baby:  Doji on the second day whose shadows gap above the previous day’s upper shadow
•  the hammer: lower shadow of this candlestick is at least twice as long as the body
• and some variations of dojis