1) Ascertain the probability of the overall market continuing its trend or reversing.
- Is the general market going up or going down, and for how long has it been doing so? More than 3-5 days in one direction is unlikely & risky.
- The general market stochastic (14/3) must be heading in the right direction (long/short).
- Up market for an up trade (long) ↑, down market for a down trade (short) ↓. Don’t go long in a down market, nor short in a market upswing. The macro environment and the individual stock must line up.
- The ideal trade is to go long/short at the precise moment when the overall market has turned your way.
4) Research the trade:
- What are the fundamentals?
- What are the technicals? Do they support the fundamentals? What is price saying?
- Is the stock on the right side of its consistent moving average? If it’s on the wrong side, don’t touch it.
- Look to M/A crossovers for confirmation.
- Many trades will not ‘line up’. That’s ok. Consider only those that meet your criteria and thus increase the probability of success.
- Choose leadership for longs, weakness for shorts.
- The entry point is critical
- The lows and the highs are the most important: the lower the buy on an intraday level, the safer the trade will be and the tighter the stop. The same (but inverse) is true for shorting.
- Buy in tranches. The 1st trade must be profitable and have a stop beneath it before entering the 2nd trade, and likewise the 3rd.
- The goal is to raise or lower the stops to the stock’s original purchase price, and let it run. If the stop ends the trade – there’s a negligible loss. It if runs, there will be a profit.
- Each day there are at least two or three good opportunities.
- The subconscious is able to find them and recognize them. Trust it. There is no need to force a trade.
- Part of being a trader is being a whole person: healthy, active, and at peace in other areas of life.