Congratulations for making it this far! From the previous 11 articles, you have been given a holistic overview of the stock market and trading; the components of a market index, comparison of brokers, the technical analysis tools and strategies we use, and position sizing.
In this final lesson, I will bring you through the whole process, from choosing your potential stock to planning your entry, stop loss, and exit.
I will be using the chart of Electronic Arts (EA). Please note that this is just an example as the opportunity to buy this stock has passed.
#1 What to Buy?
As the old saying goes “The trend is your friend”, before committing money to any stock, I want the price to be trending upwards (aka uptrend).
#2 Determine Entry Price
Where there is a confluence between 2 or more technical drawings or indicators, the signal is stronger. Here, I am referring to the confluence between the trend line support and resistance zones.
The candles with the pink up arrows make a good entry point because prices are at (or very near) the trend line and support zone. Only enter when the candle has bounced off the support zone and/or the trend line.
Remember that there are several order types which you can use to your advantage.
#3 Determine Stop Loss
You have shortlisted EA as a potential stock to go long. It is time to consider where to place your stop loss and profit target levels.
Remember the 4 ways to determining a stop loss level?
Zooming in to the first 2 pink up arrows, the support zone is between $98.30 and $99.40. Using the Percentage Change method to set my stop loss level, I put on the PercentChg indicator and set my stop loss level accordingly.
Based on the Swim Trading PercentChg indicator, I will set a stop loss of 7.3% (see the neon green line). My stop loss level will be $92.14.
#4 Position Sizing
To determine the number of shares to buy, you can check out my position sizing calculator.
#5 Target Profit
This is the last thing to look at given that we have a limited trading account size. Trading defensively will keep us alive.
You already know:
- What to buy
- When to buy
- When to cut loss
You need an exit plan. Sit back and let the market play out.
There you have it! You have a trading plan to guide you. You know how to create a trading plan for the stocks you have been eyeing.
Give yourself a pat on the back for the effort and time you have put in to improve yourself.
Here’s What You Can Do To Improve Your Trading Right Now:
#1 Join us in our Facebook Group and share your questions as we learn and grow.
#2 Never miss another market update; get it delivered to you via Telegram.
#3 Grab a front row seat and discover how you can expand your trading arsenal in our FREE courses (for a limited time only).
See you around!