1) Entry position
2) Position sizing
3) Exit position
By having a trading plan, effectively, an individual has an added edge over the others. One would know what, when and how much to enter for a particular stock. The price is 0.50 now, should I enter now? The price is 0.49, is it now a bargain (since its cheaper than earlier 0.50) or does it render the plan null and void (since crucial support is broken)? I don't know, but your trading plan should already tell you that.
Ok, so we know whether we should enter or not. Question is how much? Should it be 1 lot? 5 lots? 10 lots? Should it be 5% of your funds, or 10% or 20%? Again, I don't know. Your trading plan should also tell you that.
Exit. Now comes the really difficult part. When to exit - irregardless of whether the exit is made on a profit or loss, when do we need to exit? If we purchased at 0.50, should we exit at 0.48 or 0.45? If the price moved to 0.60, should we take profit, or should we let it run?
Point is actually, when the market is ongoing, we barely have time to analyse or to think. Most of the work should have been done the day before. On the market day, we merely execute the plan - entry and exit should be planned. And when the time comes, we need to be bold to carry out the plan.
Say the plan calls for entry at 0.50, but we hesitate, the next moment, its going to be 0.52. Then, we ll tell ourselves, it ll pullback later, it will. But we re merely consoling ourselves. Price went up to 0.55. Should we still enter? Now its 0.05 or 10% higher than our original planned entry price. What do we do now?
Same with exit - whether its profit take level or stop loss - should we exit at 0.50 as planned? Heh, heh, I can tell you from experience, the moment we hesitate, the price is not going to go our way, its going for 0.48, the next moment we hesitate again, its going to be 0.45, and then 0.42 and lower and lower.
So be bold my friends. Be bold in taking and making the decision. And have the trading plan in hand - to be able to be bold.
"Boldness has genius, power, and magic in it. Begin it now."
- Johann Wolfgang Von Goethe
4 comments:
Max, we use FA n TA etc to make our buy decision, like ur post sell is a most diff preposition. Rem a gain or a loss is the result of 2 transactions, ie a buy and a sell decision. So when u begin a business transaction it must be a complete evaluation, the whole equation. P=B-S, not just 1 side of the identity, B, such 1 side evaluation is prone to error.
Yes, like business before we buy the stock to sell, we must know
1) How much it will cost?
2) How much are we buying?
3) How much can we sell?
Same like trading. Yeap.
Max, I am still struggling with the cut loss plans. When I see a stock price dropping, I often ask myself, have I given the stock enough time to perform? 10 out of 10 the answer is NO. Because all analysis reports were based on at least 6 to 12 months target performance down the future.. so, how can I simply cut off when I see the price has some fluctuations? .. But.. the thing that bothers me is the unforseen causes that can drag the market down out of a sudden. By the time i realise something is not right with the market, the damage could be inevitable already. Hence, I feel i should have a stop loss plan like everyone else. Like R has mentioned in his blog, before we plan to win, we must prepared to lose what we can afford. Will work harder on the plans. I thought invesment on stock market is a long term investment, how come need to exit? Stock market is so unpredictable.. so does life.
BB,
First find your style - is it trading or investment?
Then decide on your timeframe.
Then only you could possibly draw up a plan.
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