Friday, September 28, 2007

Trading Plan

I'm glad I've finally come to this realization that what I've been doing was, to put it lightly, the worst thing I could be doing, trading without a full plan. I knew all along I needed one, but I couldn't develop one that was custom tailored to me. I've developed a plan that I like and it's a very simple system.  I won't know how this will perform so I'll have to stick with it religiously for a few months to see how it's working out but I think it'll do ok.


Stock Selection:

Step 1: 9 day EMA must be either heading up to cross the 21 day or have just crossed the 21 day EMA on a 6 month chart in 1 day increments

Step 2: Plot out support and resistance levels on the 6 month chart

Step 3: Stock must be close to support levels and far enough from resistance to potentially make a decent profit

Step 4: If the stock can't make a 3.0 risk/reward, lower percentage of portfolio to use (see Stop Loss) if neither option can work, abandon stock

Step 5: Volume must be increasing over the 200 day EMA as the 9 day EMA is starting to cross the 21 day EMA.

Step 6: If everything checks out start looking for an entry and exit point



Step 1: Zoom in to a 5 day intra day chart to plot potential support/resistance

Step 2: 9 Day EMA must be close to crossing or has crossed the 21 day EMA.

Step 3: Stock must be close to support and far away enough from resistance to potentially make a 3:1 profit

Step 4: Depending on where the stop is, figure out how many shares to buy


Stop Loss:

Step 1: Place stop based on volatility of the stock and support levels on a 3 day chart

Step 2: 2% stop (maximum) use 50% of portfolio

Step 3: 4% stop (maximum) use 25% of portfolio



Step 1: Zoom in to a 5 day chart and see where the action is in relation to support/resistance

Step 2: When the stock gets close to either 6 month or 3 day resistance, raise stop to a level of profit taking but not enough to get stopped out right away

Step 3: Either get stopped out and move on or let the stock run until I do get stopped out (keep raising stop)




This will be my base plan. I'm sure I'll be fine tuning this over time but this is what I'll be working with.

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