Building a Trading Plan

Building a Trading Plan

James

[Date: Thursday, January 11, 2007] [Viewed: 3187] [Comments: 0]
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Requires using technical analysis, fundamental analysis (very little) and some select indicators, e.g. the Dow, Nasdaq and the S&P 500. I call these indices indicators because we use them to find momentum to make the trade on the Emini S&P. The important factor is how to define the risk and the reward. After watching the TV for a few weeks you should have come to a conclusion of how far up or down the S&P can go in a day. If it has moved too far too fast at the open…the risk is too great for the reward. If it’s too far down, it probably won’t give you enough reward to pay for the commission and charges. It has to have room to move past resistance or below support to move any further up or down. Some other technical indicators I use are the MACD crossover, volume, gaps, and watching the trend line. The fundamental indicators might be some major news.

Understand why and how to use market commentary. Stay out of the market till the dust settles. Use the calendar to find out when these reports are due out, unless you want to become a gambler! Ask your broker about any market news, and what time they are going to be reported.

Choose some indicators you think may be potentially indicative of the market. By the way, the market may move very fast and then turn around and head back the other way. Look for an opportunity to get in. If this news is at the end of regular trading hours you better watch out at the open tomorrow, or the next trading day. Look for a gap move, or trade long on a day before any major holiday! It works most of time! Some people say that if the public thinks it will go up, it goes down and vice-a-versa…be a contrarian.

Choose a target price for an exit like 2 or 3 points, and a stop loss figure (I use 2 points for a stop loss, or look at the trading range to make my decision.). Don’t try to get every penny out of the market; it will just cost you money. You can’t pick tops and bottoms or we would all be rich. FOLLOW YOUR PLAN.

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