Wednesday, December 14, 2011

Plan Your Trades and Better Trades

You have probably heard the saying "if you fail to plan, you plan to fail." This couldn't be more true in the world of trading. None of us begin to trade with the intention of failing but that is just what we are doing if we blindly look for trades to put our money into without a proper plan of attack. I recommend taking some quiet time when the markets are closed to create your plan. "What quiet time," do you ask? Believe me, with a two month old, I understand better than ever how difficult it can be to catch those few moments of down time in our lives. But it really is imperative to our success as traders that we do this. With a little focus and dedicated time, we can review our current trades, plan our future trades, and maintain a diversified account. Let me share with you what I do during my planning sessions. The first step is to find a time that you can devote to planning each day. It doesn't have to be a huge amount of time, but I would advise you to start with a 30 minute to an hour block of time. I know we all get busy and it is easy to skip a planning session here or there. But if you are serious about making money in the market, this is a step that cannot be skipped. Block out some time to plan, and don't let the minor distractions in your life get in the way. I begin each planning session by reviewing the market calendars. This is easily done in the Dedicated Trader by going to the calendaring section. I look at the economic events coming up for the next day and the rest of the week. If there are any major economic events that may affect the markets, I want to know so I can prepare by tightening my stops. And there are some events, such as the FOMC minutes, that can create great trading opportunities. I also check the earnings calendar to determine which companies and sectors may be announcing earnings that week. You do not want to get caught off guard by a company you are trading announcing earnings without you knowing about it. After reviewing the calendars, I move into charting. I begin with a chart of the S&P 500 to see what condition the overall market is in. Is it trending up? Trending down? Moving sideways? This helps me set my trades up as I like about seventy five percent of my trades to be in the direction of the markets. If the market trend is bullish I want most of my trades to be bullish, and I let the bullish market pull my trades along to give me a greater success rate. I also diversify by finding stocks that are bucking the overall market trend. For instance, in bullish markets I try to find the stocks and sectors that are the most bearish and I put about twenty five percent of my trades in those plays. When the market reverses, (or has some bigger retracement days within the uptrend) these bearish plays become very big winners for me. This is an easy way to make money in both directions. Once I have a feel for the markets, I move into individual stocks. I run through my Ultimate Scans to find specific stocks and sectors that are forming strong technical patterns and will thus make good trades. I already mentioned diversifying the type of plays you have going and I also make sure I am diversified among the best sectors. If you spread your money out, you minimize the risk and can capture the gains in more than one stock or sector. At this point, I start setting alerts and orders. On a day that I can look at my intraday charts from time to time, I prefer to use Real Time Markets to set an alert at the price at which I want to get in or out of a trade. When that alert is triggered, I will check the chart and manually execute the trade. Things have changed for me now as my new little boy has made it more difficult for me to check my charts during the day. So I am using contingency orders more and more. A contingency order allows you to set a stock price at which you want to buy or sell an option. When the stock hits that price, your option order becomes a live market order and your trade is executed. This is a great way to go because it allows those of us with limited time during the day to trade just as successfully as those in a position to use intraday charts. Do not forget to manage the trades you are already in. I spend a few minutes checking the charts of my current trades and adjusting my stops accordingly. If you spend some time developing a trading plan for the next trading day, you will find that your trading goes much more smoothly and more profitably. Review the market calendars and the bigger indexes as background before you start finding your trades. Then with that knowledge, you will be better prepared to develop a solid, diversified trading account that allows you to capture the moves of some of the best stocks and sectors for that time. Now that I am back after taking some time off to have a baby, you can learn more about my trading plan and my system of trading by joining me at a Technically Speaking two day workshop. Hope to see you soon! Markay with Better Trades

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