Well, when I say stock trading system I am thinking about set of rules. These rules have to reply to questions described below. Consider them as your best stock pick guides.
1. What is time frame for your trades
2. What type of trades you are looking for
3. How you will find best trading opportunities
4. How you will set entry, stop-loss and target points for my trades
5. How you will enter and exit trades
6. How you will manage trade
I use rules based on these points in my everyday stock trading for living.
Time Frame
Definition of time frame for your trades is necessary. You need to know how long you could hold position. I personally define these types of stock trading
Trade Types
My trades are based on simple rules. My basic premises for trades are support and resistance . So simple stock trade can be :
1. Breakout trade . This trade expect break of significant support or resistance level
2. Pullback trade . This type of trade expects that price will bounce from important support or resistance level
How to find trading opportunities
There are several ways how to find best stock pick (understand stock trade setup) for the next day. You can use:
* stock screener available on Internet
* stock scanner integrated in your trading software or analytics software
* special list with manual selections
I also found that checklists can help to improve stock picking process a lot.
Set up you entry, stop loss and targets
You need to have these important values prepared for each of trade setup you like and which fit with your trading strategy.
First you need to find good entry price, then you have to think where to place stop loss and finally you can think about possible targets where you can realize profits.
These 3 values must fit with your risk:reward ratio definition. This procedure will tell you if your setup is good and worth trading.
Entering and exiting of trade
Knowledge of right order types used to enter or close of the trade is part of good stock trading system.
Read also why I do not enter any orders before market open.
One trading veteran told me that it is not good to enter stop loss orders or stock trade entry order before market open.
The main story is that "amateurs control the open, professionals control close". It means that a lot of amateurs investors are placing their orders before market open. Most of these orders are based on some "hot stock pick advice" or some "hot news" received in pre market hours.
It creates huge opportunity for market professionals to profit from these orders. It is very common that such news move stock price during premarket hours already and stock is opening with gap (price is much different from yesterdays close price).
It means that stop loss orders or trade entry stop orders of these amateurs investors are often filled in totally different price then they expect. And after first few minutes of trading , when all these orders are filled , price returns back to previous days close levels.
It is happening on daily basis. I saw it a lot of times during my trading career. So I think that this stock trading advice for online trading is very important.
Stock trading advice for online trading
* Do not enter any orders before market open to be filled after market open
* Wait 5 or 10 or 15 minutes and then enter your orders. Adjust stop loss levels or trade entry levels accordingly
Trade management
Good trader have to take care of every opened trade. You also must make regularly monitor development of your stock trade.
The most important tasks of trade management are
* trailing (moving) stop level
* profit taking
* exit decision if breakout or breakdown fail
Very profitable approach in trade management is adding into already profitable trade or re-entry of trade.
Prepare list of rules for all these tasks in advance and follow them during active trading hours.
Write all answers to question list above to paper to ensure you will not omit them in the future. These rules are basics of your stock trading system.
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