June 15, 2011 at 7:52 am | | Comments 1

YOUR Trading Plan, Part 3

your-trading-styleIn Part 1 we discussed the importance of discovering YOU. In Part 2, we looked at the need for defining risk so that you know “the number” for every trade you make.

Here in Part 3, let’s see what the remaining process might look like.

Playing Favorites

In accordance with what you’ve already discovered about yourself, the first step in the next phase is to identify 3-5 patterns you’re comfortable trading. This chart pattern page is a great starting point. Pick out a few you think you can locate with ease, and you can always build or add more later. The aim is to master a few plays which you can rely on, and then build more into your arsenal later.

Next, set up some watch lists for each of those patterns. Add stocks into the appropriate list (ex: ascending triangle candidates) and remove them when they fail to meet the designated criteria. Filter out low-priced stocks or thinly traded issues (I prefer to avoid stocks with daily average volume below 500,000 shares). This is just another way to narrow down your list. Draw trend lines when necessary, and make notes when you see important technical events unfolding. My stock newsletter highlights actionable ideas with identifiable patterns nightly which you may be seeking.  But regardless of where you get ideas, the point here is to cultivate them on an ongoing basis.

At this point, it’s time to eliminate stocks which misbehave. These are stocks which gap frequently, or which tend to make sudden, adverse moves, or which have a history of breakout failures immediately after clearing resistance levels. Some stocks my either be too volatile or too sluggish for your liking, so get rid of them. It’s up to you, but by studying your lists closely on a regular basis, you’ll identify certain “personalities” which seem to jive better with you than others, and again this will narrow down your list by eliminating those which are not a fit.

All About Priorities

Finally, designate a way to prioritize plays. It might be the pattern itself (maybe you like ___ pattern better than ___ pattern). Or maybe it’s a certain price range preference (ex: you might like stocks in their $30’s better than single-digit stocks). It may be based upon the cleanness of the pattern – for me this is important. I like cleaner patterns, just because they are that much more concise on when I should be IN vs. OUT of the trade.

Whatever you choose, have a hierarchy for which plays you seem to do better with than others, as this will help you narrow down *your* trades without putting you into the first 25 stocks you see. It’ll also help you decide which plays to hold onto and which plays to rotate out of when you see a more fitting opportunity for your capital.

CONSISTENCY is the key. The actual selection you make isn’t nearly as crucial as many think. It’s more important to be decisive and pick one and manage it properly than it is to flip/flop between one strategy and another. The success comes in having a plan and putting it to work over and over through time, like a batter knowing he’ll have 1000 at-bats. You want to eliminate errors, and those largely come from indecision and inconsistency, like swinging at pitches outside of your hitting zone.

I hope this series has been helpful to you and has answered some lingering questions which pertain to your unique situation. There IS a trading style for you, but you have to ask the right questions, put the right kinds of plays into your routine, and then consistently execute the plan you’ve set forth.

Should you need additional coaching or assistance for your trading, contact me and I’ll be glad to show you several solutions.

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

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  1. From YOUR Trading Plan, Part 2 | on Jun 15, 2011

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