You want to make Money in Stock market and want to know how to develop your winning trading plan.
This article is written primarily for Index stocks and Blue chip stocks. For multi-bagger and penny stocks would be writing in coming weeks.
Technical analysis is something most of us avoid while trading in stock thinking that it would be too much technical. I am not going to get in-depth with the technical analysis I would be writing another post for the same.
Here in this post, you will learn the new way enhanced necessary Chart Reading Skill which is not available elsewhere. This will give you Basic Plan for Winning Trading Plan and gradually then explain you about the Advance Trading Plan.
Learn the right way to create a stock trading plan with technical tools and technical analysis which means reading Technical Charts. Also, you would learn how to buy stocks at half the price while protecting your profit and avoiding losses.
This is entirely different from Fundamental analysis and with the fundamental analysis, you cannot predict stock prices. In winning stock trading plan with the technical analysis, you would be able to predict prices.
Charting shows you the real trend and gives you an extra edge while creating your winning trading plan.
Who is this article Targeted?
- Anyone who is Investing in Stock Market.
- The trader who is losing money all the time.
- Any person who wants to Learn tricks of the trade.
- Traders who have a fantastic trading plan but fail to earn from.
- A good Trading plan can give negative returns if not managed properly.
- Understand the driving forces of the Market.
- Learn why and how trading strategies differ in Bull Market and Bear Market.
- Understand the benefits of Japanese Candlestick and how to profit from it.
- Learn how emotions affect your trading plan.
- Get to start, Execute, Manage and Close a stock as per trading plan.
I have been in Trading Room and have seen people sell a stock, and it goes up. I have learned the things the hard way which is very expensive. After weeks and months of research, back-testing and learning from successful people, I have understood what it takes to have a winning trading plan.
In short, it’s all about Mind, Money & Method rightly said by Manish Chauhan in JagoInvestor.
Winning trading plan is created first to ensure that you don’t lose money and you’re profitable in long-term. I am writing this post so that you can learn from my mistakes. As a Trader one should believe in winning the War, not Battles.
Many traders have their reasons for having a trading and also not having a trading plan. The effort one needs to maintain a trading plan are usually more than short-term gain from the trading plan. It has enormous long-term benefits. Let see the most important aspects of having a winning trading plan.
- Minimizes Uncertainties.
- Effort to achieve Trading Goals
- Planning encourages Innovation.
- Gives an edge to Improvise one’s trading.
- Planning revolves trading profit goals.
- Reduces risk due to uncertainties.
- Planning creates an atmosphere of order and discipline.
- Defines Planned Goals and standard of performance.
- Best utilization of possible resources improves quality of trading and helps in forecasting.
- Avoids repetitions of Errors.
- 1 Reasons Why You Are A Rookie In Winning Trading Plan & Quick Tips About Winning Trading Plan
- 1.1 #Assessment
- 1.2 #Homework
- 1.3 #Key Concepts
- 1.4 #Trend Analysis
- 1.5 #Trade Preparation
- 1.6 #Trade Management
- 1.7 #Millionaire Winning Trading Plan Blueprint
- 1.8 #Tricks
- 1.9 Wrapping Up
Reasons Why You Are A Rookie In Winning Trading Plan & Quick Tips About Winning Trading Plan
Trading in the stock market requires an individual skill. There are different school of thoughts if trading is a skill or art. We are not getting into that for now. Making right preparations before your starting out your trading journey would be able to moderate your risk. It is possible to assess your skills yourself before putting in your hard earned money at risk. Stock market strategy and investment perform best over an extended period.
You can always start your stock trading with Paper Trading in the stock market. But it carries certain disadvantages also.
It is not the question of being frugal with stock market idea provider but having the right skills and attitude will help you take maximum from them. And over a period, you would not require them at all.
Assessment is broadly classified into three that are required to do before you start your career in trading. Assessment is very simple but critical. It is straightforward but highly effective.
Being good is the below-mentioned skill is required. You don’t have to amazing neither do you need multiple tools. You should be focused all the time. When I say, focus it does not mean to sit in front of the system all the time. You should be focused and always looking for opportunity.
The market will always give a false alarm or false signals it becomes imperative to control during those situations. Follow your entry and exits meticulously.
Record keeping of your old trade and doing continuous of where you went wrong. Record keeping would also help you with your research and built your market knowledge.
Having necessary analytical skills such as calculating IRR, technical analysis, risks are very vital.
- Record Keeping
- Analytical Skill
- Market Knowledge
The risk is a huge topic and runs into pages.
This is necessary assessment because most of the time people fail to understand the risks itself. One would be able to manage risk only if he understands or knows what the risks are.
The risk is broadly classified into two.
- Internal Risk
- External Risk
Internal Risk is usually person own risk which arises from his situation or attributes. External risk is a risk which he has no control over.
- Stability in Trading
- Trading Structure
- Personal Issue
- High Costs
- Internal Environment
- Interest Rate Risk
- Credit Risk
- Inflation Risk
- Market Risk
- Reinvestment Risk
- Social Risk
- Political Risk
- Currency Risk
- Exchange Risk
External risks should not worry us since they would be covered in our research before trading. It is vital that internal risk should be given high importance.
I have known first-time traders who are just hand to mouth with their monthly expenses or do not have any saving’s at all. Putting in your entire emergency fund in trading is a risk in itself.
Intraday trading requires high infrastructure costs especially when you are doing a huge amount. You would need an internet lease line, high configuration computer which does not go down, power backup, etc. Most of the intraday trader does not have these and start to trade only to lose money because one of the above reason.
You should ask yourself is Intraday Trading really for you?
If you are keen on ten profitable day trading tips which I don’t provide you should listen to Raviraj Parekh who is passionate about money matters and finance.
Carry forward trading, or short-term trading does not require the above infrastructure. Also, this costs less.
Stock trading has always been more of a mental game than anything else.
Subjective assessment is the most important aspect of stock trading. Majority of people I have met want to always be right in a trade.
Our human nature works against us in the stock market. Once you enter the trade, your thinking becomes very narrow. An appropriate mental assessment is a must.
Now there are two ways in which you can take a psychological evaluation. First is when you start off with paper trading you would realize where you stand and how you can improve yourself. This would be an eye opener to yourself.
There are disadvantages of Paper Trading since your real money not involved. You should part a minimal amount rather than be trading the entire amount you are going to start with. This would give you an opportunity to asses.
Initial traders start with a little amount, with first small success, they start investing a high amount for trading. A very act of doing this is trying to walk and run together.
- Being Smart at Trade
- Stuck with Being Right Always
- Fundamental Analysis
- Getting Emotionally Involved
- Survival Mode
- Each Trade is Different
- Dealing Uncertainty
- Trading Daily
- Walk & Run Together
” I Miss the Days when Homework was Just Coloring.”
Trading activity enough homework has to be done before entering into every trade. Preparation gives you the confidence of what you are doing and the reason behind it.
Remember, we were told not to do homework in the class.
Same applies here. Never start working out on your plan during the trading hours. Only because the market now influences your decisions. An ideal time for decision-making is before or after the market hours.
” Can I Copy Your Homework?”
“Yeah but the answers are
probably all wrong.”
“I don’t care, Thanks!”
It looks childish. Yeah thought so. In either way, the guy who has written the answers will learn.
But don’t we, copy other people’s strategy so easily without doing the proper homework. What works for one does not work for everyone.
Your homework has to stick to your trading goals, and your trading has to stick to your homework.
I have jolted down points which are most important to consider while preparing yourself for the trading. Believe me; this is still not going to make you profit perhaps save you from making the loss.
I leave the homework to the last day because I’ll be older and wiser.”
Most traders have the habit of watching news channel and taking their trading decisions, I don’t watch news channel and Even you shouldn’t by Safal Niveshak.
You get my point right.
Total Number of Trades
The first thing you would learn is to decide your entry and exit for each trades. Most people would like to make two to three trades per week, but their entry formula would be giving them a few dozen entries daily.
When you start preparing for your strategy and when you would backtest, understand what are the number of entries and exit one would have to go in a particular time. You do not want to choose a strategy indicator or indicators which gives multiple entries and exit each day.
Once you have got the plan in place with a limited number of trades for the given duration. Based on the backtesting narrow down the number of trades that are usually triggered. If the system provides too many trade signal, it should favor with a caution.
Another benefit of limiting your number of trades is you would have enough time to analyse your trades.
One of the worst belief that most people have is more trades is equal to more profit. That is never going to happen. Remember the Pareto’s 80/20 Rule.
No Of Trades to Measure Performance
Backtesting has shown your positive results for a particular strategy. You have narrowed down on this strategy after learning and listening from many people.
You have done enough of paper trading. You are very confident because you have backtested for almost few years.
Finally, after all the hurdles when you start implementing chances are you are going to experience loss in your first trade. Or maybe in your first month. Or even your first quarter. Never, based on this close your trading activity.
Keep a total number of trades to measure performance. Even if you are doing average review your performance and improvise before your enter trading next time.
Don’t keep your measurement too short that you end up giving up too soon. Only to realize that if you had continued a little more, you would have been in profit.
Make sure your strategy can withstand ten consecutive losing trades.
Key Performance Metrics
Profit is the most important aspect and the only aspect which is considered.
You might be making an average return in your first year. Should that be the only metric to decide to change your strategy?
Let me give you a scenario. If the success ratio of your trade is almost 60%, but you are making an only average return. Then, in that case, you should not change your strategy. Because some strategy gives higher profit only in a single trade.
Profit although very important should not be the only metric to decide to correct or change your strategy.
Time of the Day for Trading
During a particular trading time, many stocks give false triggers. Becuase during those time the volatility is very high when compared to the whole day.
Deciding during that period could lead you to take wrong decisions because of false triggers.
The first opening half hour or an hour and losing hour are not the right time to enter and exit a trade. Historically the spikes in the stock price are the highest during those times.
Same is the case if you want to enter or exit based on your system triggers. The ideal time for entering is in the afternoon because the market volumes usually drop during those time and chances of spikes are very minimum. Also, consider if there are any events expected. Try to avoid entering the stock market just before some major key events since it might work for you or against you.
Identify the Stocks to Trade
The success of your strategy is wholly based upon your stock selection.
Your mental assessment is most important here. If you are not prepared for loss or if you are going to face the trading loss for the first time in your life and if you select a high beta and a high standard deviation stock you could be booking loss for a profitable trade.
The criteria to select the stock for trading purposes should be based on two critical parameters.
- Standard Deviation
- Beta of the Stock
I recommend first time traders to start with the trading index usually. The reason being you don’t have to deal with the beta. This gives you an opportunity to understand the functioning of the standard deviation fully. I would suggest starting with the main index instead of any another index because they are a little more volatile than the primary index.
The beta of the index is equal to one because while calculating beta you would be comparing the stock with the performance of the beta.
Another reason the main index is not very volatile is that small sectoral news good and bad is quickly absorbed. And this does not give jitters or spikes in the index prices. Which is not true with other companies and small indexes.
Money Per Trade
The trading strategy should consist of two parts. At least mine always do.
First is to enter the trade and second is to make necessary adjustments if the trade is not going in our favor and turn it profitable.
- Trade Entry
- Trade Adjustment
How many trading losses your trading strategy can survive. Based on that calculation your capital should always exceed the total number of consecutive trading losses. Your trading strategy should survive max drawdowns. Keep three to five times the capital of max drawdown and ensure that you are not out of business anytime soon.
If is foolishness to put your entire capital in your first trade. If your capital does not suffice your max drawdown, then there are strategies which will bring down the cost of acquiring the stock to almost half the price. But never compromise with your money per trade based on the max drawdown.
There are many tools available to calculate the max draw down on a trade. Some of the tools that you can use are Amibroker. For software related queries for Amibroker, AFL Programming, Intraday Signals you can contact MarketCalls by Rajandran.
Money! Money! Money!
Most of us including me enter the stock market to make money, but we hardly remember that during the trading course of time.
Our aim from making money shifts to being right. This creates a conflict while trading. Your goal is changed to being right all the time rather than making money, Even if you succeed over a period you would not be making money and feel unsuccessful.
The number of key concepts in a stock trading domain is enormous. There are hundreds of types of stock charts and concepts the list goes endless. The below mentioned are the three most important aspect while reading a time series chart to understand the historical price movements and tools to predict or forecast the price change.
Stock price prediction is crucial which is the premises of stock trading. The below mentioned gives conviction on your predictions of the stock.
Calculating the volumes for a particular stock is easy the total number of shares traded in a day. Don’t mistake this as a total number of buyers and seller. Volumes indicate the number of shares has exchanged their hands in total. If you’re a newbie retail investor, read on. While it might look a straightforward detail, it adds value to your trading decision.
The data on volumes are readily available on the exchange website and under the particular stock or index page.
If you are going to start with the index, you don’t have to worry about illiquidity because one of the highest traded would be the index in any stock market.
Why is Stock Volume so much important?
If a stock price changes with a higher volume, it’s likely that’s going to sustain a little longer. This gives you conviction to predict.
When the price goes higher with higher volumes, it only says that there is more money being put into the stock. More money is going into the stock give you confidence that the price of the stock is going to go higher.
If the volume is meager and the price move higher the chances of it sustaining are very less.
Most of the current broker offer free charting tools with their brokerage account like Pi provided by Zerodha.
You could always understand the difference between Trading account and Demat account best explained by Basavaraj Tonagatti of BasuNivesh.
Plotting of price and volumes on a time series chart to understand price movements and predict the future price is the chart. People those who follow the charts use technical tools, and various price indicators and techniques to anticipate future price movements are called chartists.
Reading an excel sheet of daily price action would be very difficult to understand the price change and at the same time predict the price.
Technical analysis is the study of the chart using various tools to predict the stock price movements.
The number of tools that are available for understanding and using a charting software is enormous. We are going to discuss the most popular and the recommended
The most popular are Japanese Candlestick Chart. This pattern of the chart is prevalent because charting is done with four-point focus. Each and every candle consists of open, High, Low and Close.
The moment you see a chart, you would be able to understand how to use it. For those who find it tough to read words would be doing a video on charting and technical analysis from some time now.
Support & Resistance
The resistance is always above the current market price, and support is always below the current market price.
In simple words at any point above the current market price when the supply is highest so that the stock price resists to break is called Resistance. Likewise, at a certain price point below the current market price when the demand is very high is called Support.
There is also psychological support and resistance which could be for Index like 10,000 points etc. This forms a crucial resistance and support.
Breaking of a major resistance the stock price could be pushed on upward direction not necessarily always. Same way once major support is broken stock moves in the downward direction.
To learn in-depth about support and resistance you should visit varsity of Zerodha.
The price of a stock price moves in trends. They are classified into three categories.
- Side Trend
- Up Trend
- Down Trend
Price moves in trend because something is moving them. It could be anything for that matter of fact. Needless to say stock price move just like a flock of sheep. When it starts moving in one direction the rest are going to follow. TradingSim explains rightly how to identify when a stock is starting to Trend.
Price Moves in Trends
Traders catch this early and profit from a change in trend. Trends last from few days to few years a trader can benefit from this in many ways.
One can look for a change in stock price pattern to predict a change in the trend.
Understanding the Trendline
A line when it is drawn based on prominent points in a chart is called a Trendline. The same line is extended which in turn acts as a support or resistance.
It usually connects two peaks or troughs.
The breaking of a Trendline signifies a change in the direction of the trend. In the stock market, they say make trend as your friend. Never go against the trend.
The most important concept here that the points connected either peak of trough should be more than 3 points. Any decision should be taken only after trend line is drawn over three prominent points.
Large Price Moves
First time traders are thinking to trade as holding a stock position for few days. There is no precise definition for trading and investing. Hence we consider when a stock’s holding period is more than one year it is an investment. And holding period of stock is below the period of one year would be considered as trading.
Anyone who starts trading has two options.
- First, to hold a large stock position often leveraged but for a brief period of time like two days or three days. This type of trading is usually done to get quick money e.i. to earn a good return in a brief period of time.
- Secondly, to hold a minimal position in stock usually not leveraged for a very extended period of time of time. This could range from few weeks to few months. This type of trading on a small investment a large return is targeted.
Most of the trader consider doing the first way.
Whereas the opportunity exists for the second method. More importantly, you don’t have to sit in front of the system the whole day.
The toughest thing to in stock market is to make predictions. Even more, tougher is to make short-term forecasts. To make our job easier and more successful, we simply follow the second method where time is on our side.
Hence, also look for the larger movement in the stock prices. Most Importantly predicting and putting your money in more significant moves gives you an opportunity for trade adjustments. Trade adjustments are methods for turning a loss-making trade to profitable or breakeven.
Breakout & Breakthrough
The subtle difference between them is what makes, even more, important to understand.
Both the above scenarios are traded differently, and their expected return vary broadly. The way to find these opportunities is also different. To find a breakout a simple research would suffice, but in case of a breakthrough, a through research beyond technical analysis will be required.
Let’s first understand the difference.
Breakout is something like to pass the enemy line. Or advance through something. Something similar to what we have discussed above.
Something like breaking the trendline. Any point in time a breakout from the trendline or a creating a new trendline would result in a change in the course of price movement. This takes time to predict, but the change lasts from few weeks to few months.
This happens usually when small news flow in, new order, change in management, new opportunity, new market entry etc. The impact is for a limited period of time.
Breakthrough is my favorite.
Breakthrough is a significant progress or overcoming some major obstacle.
Some companies have been hampered by certain catastrophic challenges which they were not able to overcome. Something like their product been banned in a country, losing manufacturing license, becoming a loss-making company, burdened with debt etc. Now, this takes time to overcome. This does not happen instantly.
How to find out a breakthrough in charts?
Any stock price which is moving sideways for more than 7 years and hits all-time high or 7 years high the stock has entered into the breakthrough zone. The market has all the information which is getting factored into the stock price before we know about it.
The right time to enter such a stock is to wait and watch for it to test the all-time high again. Since this was a major resistance for an extended period of time, it would take a chance to break. Once it has tested all-time high price, it is the right opportunity to enter the stock at those levels.
Looking for breakthrough opportunities is always preferable over breakouts.
This is a lengthy trading preparation but as the time passes one would get used to it and execute the plan. Stickying to the plan is as important as the plan itself. Reason for having a trade preparation is so that you don’t lose on an important factor.
Once you have finalized these specifics can be fed into a system which would give you right screening results.
Some of the major indicators used are stated below. But it always differs from person to person which is the right indicators. The below listed are most commonly used.
- Demand and Supply Analysis
- Japanese Candlestick Chart Price Action
- Trendline Breakout and Breakthroughs
- Moving Averages
Usually, these indicators are used in combination or independently.
We are not looking at pennies while trading. Using few minutes would generate signal quite often and very tough to follow.
The ideal time frame should be 1 Hour combined with 1 Day. This two indicators simultaneous used gives confirmation on the signal given.
Why People Abandon Your Plan
Hours have been spent on backtesting, paper trading, researching etc.
Majority of people abandon their plan after a short period of time only to realize that they have lost an opportunity. Most successful traders stick to their plan for a very long period of time and keep on improving. Slow, gradual and continuous improvement makes your plan better every day.
The loss is the main reason that people lose faith in their trading plan. Secondly, they find a completely different trading idea which they feel is much better than theirs.
Plan Practise & Confidence
Every plan finalized should not be implemented until it has been practiced and you gain enough confidence in the trading system.
Very often you enter prematurely only to change the plan and finally lose hope on the trading itself. Keep practicing the trading plan until and unless you have undeterred confidence in your trading.
Backtest should have at least one market crash so that you understand how your plan is working during those times. If your plan survives a market crash then it is a full proof plan.
Components of Each Trade of Plan
Changing your entire plan it would only lead to waste of time, money and energy.
Perhaps, changing components of each trade is to match the market conditions is continuous improvement. With so many software there to use, keeping a track of your components would be easy. Initially, you might be required to make small changes in the components such as types of chart, a combination of indicators, additional indicators as the times passes it would be monthly and then gradually you would never require changing.
Set a review date for adjusting the components of your trade plan. Make sure you don’t do this during the market hours or after a major profit or loss. They might influence the changes made. have fixed day generally over a quarter to review your components.
Discipline to Stick to your Plan
The main reason why we are giving so much emphasis on a trading plan is that we don’t want the emotional intelligence to work while trading. Human emotional intelligence is completely against the trading system.
This is your structure for decision-making. By sticking to your plan you are only going to get better at trading as time passes. You have to stick to the plan during the thick and thin times.
Your trading plan could also lose many opportunities but that should not bother you as long as your trading is giving you enough returns.
I personally only trade in Index and I have never studied or tried any other stock or commodity until now. I have been focusing only on Index and that is my primary goal and only goal.
There are a plethora of software available to make your entire trading plan mechanical.
Making buying and selling decision based on specific predetermined criteria only to enter and exit the trade irrespective of market movements. Tracking your entire plan systematically give a higher opportunity to benefit from your trading plan.
There are many mechanical software available in the market which is already predetermined to make you a fortune. But they are not successful the reason being over a period of time you start to lose confidence. This is similar to mutual fund investing very less percentage of people make actual money in the stock market through mutual fund route.
Winning stock trading plan this is very essential. Once you enter the trade and you have got reasonable profit you can block your profit at the same time if your trade is going into losses you can adjust them to profit or break-even.
Managing a trade is the most challenging because at times you can get emotionally attached to the trade. Your aim from making money would shift to being right.
In simple words managing a trade means everything a trader has to do to maximise the profit and minimise the risk.
Entry and Exit Rules
Bottom fishing or Selling the stock at the top never works. What works in the stock market is following trends. The trend can be accompanied with other indicators such as ADX, Moving Averages etc.
Wrong entry and exit can make it very tough for one person to manage the trade.
If you think trade exit is the most important factor in a trade then you have got it all wrong. The most important part is managing the trade. While you are managing the trade you also block your profit this gives you an opportunity to stay in the trade a little longer while reducing the risk.
Breakout and Breakthrough are managed entered and executed very differently.
Derivatives would make it cheaper for hold a large position in the stock while trading. At the same time, it would make it very complex.
A trade gone sour should always have enough capital to cover the capital required for adjusting strategies. There is a limit to how much adjustment is possible while trading a stock. Not all trade gone bad can be turned profitable.
The capital required for stock trading is different from derivative trading. One should always keep idle cash in the account to make the right delta adjustments. Nevertheless, unlike investing, in trading, the opportunity never ceases especially if you are trading in derivatives. This in a way gives you an opportunity to create a passive income even during the bearish market.
Now coming to the ideal money kept in the brokerage account should not be treated as an opportunity lost. Most of the traders disagree to keep the idle money the reason being they consider the money is kept without any use and they start deploying the entire amount in the trade.
I usually recommend trader to buy tax-free debt and leverage those instruments to get margin money. The money you earn out of tax-free instruments is very minimal but the psychological satisfaction that money is put to use would not let you take wrong or hasty trading decisions.
Many traders spend lakhs of rupees to find the holy grail technical indicator which is going to give them the positive signals all the time.
They spend money on software, tools, tech, get coders into this to programme them trading tricks.
They make the entire trading process way to complex only at the end to get confused with multiple indicators and signals.
Keep it Simple Stupid.
I am not discussing technical indicators here since that’s a very big topic altogether.
Most commonly used and giving good results are trendline, breakouts, moving averages and Japanese candlestick. You can increase or reduce few indicators that’s it. You don’t require more than this.
Continuous small improvement in the trading plan is what required at the most to succeed in trading signals.
You have to review not only your losing trades but profitable ones and trade adjustments also. Your record will help you replicate your past success and avoid losing trades.
Also, this will give you an opportunity to adapt to the changing market conditions.
Adjusting to Market Conditions
market conditions are ever changing and this is what requires you to monitor and makes changes in your trading techniques.
One of the most important parameters that monitor the market sentiments is VIX one should consider this as your yardstick to understand the market sentiments.
VIX is simply the gauge between the fear and greed and the better you understand and use to your benefit you would find earning opportunities. Right earning opportunities are found between greed and fear. Understanding that will give you the conviction required to take the right risk to earn money the right way.
When to Take a Break
Instinctively one could answer after a big Loss.
That’s a bad Idea. You could be missing a huge opportunity. First place the reason you have started trading is after backtesting. Your results are a combination of all the profits and losses. Your losing streak could end with a single profitable trade which you could have missed.
Ideally, taking a break should happen during high volatility results. These are the times when usually even experts find it difficult to manage positions.
Trading Plan Template
Trade Management and Trade Preparation put together in a systematic way in excel can be used at stock trading plan template the same template can be used for commodity trading plan template and forex trading plan template.
#Millionaire Winning Trading Plan Blueprint
Winning trading plan is not a to-do list of trading strategy. I am going to tell you a bigger picture of winning trading blueprint which you can explore, understand and implement.
Whether you’re a pro or just getting started, the post will give you a framework to make your trading strategy really strong. Ironically, points and tips will also apply to value investing.
Your trading skills will eventually improvise your investing skills. Value investing talks about buying at the right value while trading tells you the right time to buy.
Don’t expect this to be ready to take and readily apply the strategy. I am going to give you concepts and ideas which would form the base. All the ideas that have been mentioned below are well researched and got from some millionaire trader who doesn’t want to be named.
Stocks going to Explode
You should always have an eagle eye view of the stocks that are going to explode.
Expect a change in the price of at least 2X to 3X. Don’t enter an opportunity if it is not so large. It’s not worth the time & Risk.
While accessing such opportunities even if you don’t succeed you would end up with average returns which is very good. At the same time if you are successful in even one your portfolio would give exceptional returns.
The time, money, & energy you are spending it is not worth to look for small moves. Secondly, for find small moves you would have to look for far more opportunities than few big moves.
You need just one Bull Market and Conviction to change your Life.
- Company Announcements
- Promoter Increase in Stake
- Breakthrough and Breakout’s
- Trends (Trick: Google Trends could be useful)
- Long Period Moving Averages (Idea: Use Multiple Moving Averages)
Entry Point is Crucial
It is essential at what price you enter the stock. If you are going by the price alone you will end up paying much more for the stock.
This is when we use charts to understand the right entry price for the stock. Although the chart is not a full proof plan to give you the right price for entering the stock. The chart gives you a broad view of the price movement which would assist you to take a right decision not necessarily the right decision.
Now, to get your decision right the simple formula is to enter the stock in a staggered manner. Don’t confuse this with averaging your stock price.
Averaging own price is the worst habit a trader can possess. This is exactly the opposite of what we are asking you to do.
Remember the money management lessons above you have to keep a certain amount for your trading.
Now coming back to the price entry point. Most people while entering in a staggered manner add more stocks only when the price falls. I am having a contrary view buy stocks as they keep rising. more the price rise more stock you buy. Perhaps if it falls you review your decision you can definitely add more stocks. But don’t lose out on a stock when they keep rising.
Beta of a Stock for Volatility
Using beta to profit from the trade. As suggested above start with Index because you don’t have to worry about the beta.
Because the Index of the Beta is equal to one. Stock with Higher beta which is more than one they are usually very aggressive or volatile. They have a higher price movement than others. It becomes very important to protect profit and hedge your trading position. Hedging would cost more but over a period of time one transaction or profit will cover up everything.
Usually, the hedging costs would be covered from the profit itself. Either way, you would be making a profit from stock trading.
The stock which is defensive with the beta less than one is not volatile in price movements. Managing them would be relatively easy. Hedging might not be necessary but protecting profit is essential
Research Journal has mentioned it that stock market time spent in bullish is much higher than the time spent in the bearish market. If bearish market lasts for one year than the bullish market will last for five years. Well, the only exception to this is The Great American Depression the market was flat for around a decade.
Well to be precise bearish movements gives you more earning opportunities than the bullish movements. Remember the stock market crash that made the great trader Jesse Livermore billionaire.
Again, don’t mistake this as averaging down of stock. Adjusting strategy there are plenty of options.
Adjusting can be done with options or combinations of stock, futures, and options. If you understand Greeks than it would be even more easy for you to master stock adjustments.
There are a lot of adjusting strategies to explain each strategy and their different outcomes and their different adjustments would take a lot of time to explain here.
My favorite point.
Once your trading position has entered a profit zone use some money from the profit to protect your profit so that you no longer fear losing money you have earned.
Now once you have protected your downside you let the profit run and loss is at bay.
The example you have entered Index at 9000 expecting it to go 9500. The price of the index has reached now 9200 use part of the proceeds to buy a put option so that your downside is protected and now you can aim for the index to go even 10,000.
Exactly the opposite can be done when you are a short position. This strategy does wonder when you are short in position.
How to Buy More Stock with Less Money
The first thing that would come to your mind would be Leveraged Stock Futures.
There is another way which is with options and it is much cheaper than futures. It is called Synthetic Stock Options and the opportunities and possibilities are endless with synthetic options. You can read in details Option Guide for understanding in details how it can be used.
Later in another post, I would explain the same for the Indian Market.
The above-discussed trade plan is named otherwise trading plan template, template excels all are the same things.
The reason I am not sharing with you the excel or pdf is because I believe you would not have conviction if I send you. Develop your own trading plan and I can always assist you to improvise.
Let me know in comments if you have anything to add.
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