Market Update: Time to Create a Solid Trading Plan
As the stock market corrects and potentially forms a new trend, traders who don’t have strict plans might wonder what to do next.
So far, many symbols as well as the market are not dipping as many expected and people are making big losses or sticking to their trading plan.
The rules created through trial and error allow successful traders to not only make money, but also keep it when times get tough and volatility increases.
While there can be many pieces to a puzzle, here are three important pieces every trader must have when creating a successful trading plan:
1. Know why you entered a trade.
It may sound simple, but setting the trade will let you know whether or not the trade is working properly.
For example, if you bought a dip, you are looking for a rapid price increase.
Another example would be if you bought a symbol on a breakout.
If the price does not hold above the breakout level, the initial trade idea could be wrong.
Once you realize the trade is not behaving the way you originally expected, it gives you the opportunity to exit the trade sooner or find the best way to manage the position.
2. Always have a risk point or stop loss level.
Before initiating a trade, you must choose a price level that, in the event of a breakout, will allow you to exit the trade no matter what.
If you don’t choose a concrete price level, you could easily suffer significant losses by questioning your exit price.
Many traders make more losing trades than winning trades, however, since they control their losses, they can still be profitable in the long run.
3. Choose a trading style.
Many traders constantly change their trading style with rules, indicators, etc.
In order to generate consistent trading profits, you will need to focus on one style of trading.
Switching between them is great when you’re first exploring how you want to trade, but you’ll never get a chance to fully test the rules you’ve created if your style keeps changing.
Many traders get stuck in a loop of trying something for only a short period of time before deciding it doesn’t work or they’d rather trade another way.
Therefore, keep these three points in mind during your trading adventure, as there are many trading traps lurking in these areas.
Watch Mish’s latest media successes:
How to trade during stagflation with StockCharts.com
How to trade a rangebound market with Bloomberg
Analysis and summary of ETF trading:
S&P 500 (SPY) Broke the 200-DMA at 441. Watch 426 next support.
Russell 2000 (IWM) Look for support.
Dow (DIA) 340 next area to watch for support.
Nasdaq (QQQ) 350 next support area.
KRE (Regional banks) 68.63 the next 200-DMA support area.
SMH (Semiconductors) 269.15 the 200-DMA.
IYT (Transportation) Look to stay low near 254.
IBB (Biotechnology) Must Hold 128 area.
XRT (retail) Like this to find support in area 76.