We have discussed the importance of research, strategy and execution to successful trading. Here are some of the points you should include in each one of these stages.
Analyze the overall market first. You must know the direction the market is going in. It is good to take a look at the daily chart of both the Dow and the Nasdaq and see where short term support and resistance levels lie. Write down these levels and monitor them throughout the trading day.
Analyze which sectors are strong and which are weak. You want to be the strongest sector in a bull market and the weakest sector in a bear market. Monitor the money flow from one sector to the other.
Once you have a CLEAR idea as to which direction the market is going and which industry is the one to be long or short, analyze individual stocks and write out a trading plan for each candidate you have. Follow the guidelines featured in the video.
Always trade in your comfort level and do not put all the eggs in one basket.
Adhere to your trading plan’s price targets and stop loss. Sell at least a part of your position at your price target to put yourself in a win/win situation.
If a stock gaps up over your entry price, do not chase it. If you still like it try and buy a pullback.
In choppy markets, take quick profits. In trending markets, squeeze your winners. Be diversified if you are taking overnight positions.
While managing your trades, keep an eye on the major indexes. including the bond market.
When your position is in the money, move your stop to break-even. do not let a profit turn into a loss. “In the money” is different for each and every stock, depending on volatility. For instance, being up a point or two on JNPR is not really being in the money, because the stock can move 20 points in 10 minutes, so a one to two point movement is a must wiggle However, being up a point on a stock like CSCO or MSFT means that you are in the money, so do not let that position turn into a loss.
Trail your stop with a logical risk reward ratio. For instance, if you buy XYZ stock at 75 and your price target is 95, and the stock is trading at 90, you can’t let the stock fall back to 80.
You can’t risk 10 points to try and capture 5 points. In this case, I would be stopped out at 87-881/2 depending on the volatility of the stock and if I feel that the stock may go over 95.
Time stops are to be placed as well. This has to do with the opportunity cost of sitting in a tradefor a longer period of time than the time frame you have allowed for the trade.
Download the file: Secrets to Successful Short-Term Trading