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How To Plan Your Trades

Kevin Hamilton

Planning is Critical

Select the strategy before the stock

So many investors select the stock first. This is how it goes. Your friend or someone you know or someone you don't know in a chat group says something about some stock and you get excited.

Boom. You've just selected the stock you want to trade without a strategy. This sounds all good and fine, but what if the chosen stock isn't a good choice for the strategies that you like. For example, what if the stock is currently in a down trend, but you prefer to buy call options.

In this scenario, since you've chosen the stock first, and you like to buy call options, you're likely to seek out information that will reinforce that buying call options on this stock now is a good strategy. This is a super easy trap to fall into without even knowing it.

If you're going to go this route, you have to select the stock with a completely open mind and then do the research on the stock to figure out how and when to open a position, or if you even should. This will include fundamental and technical analysis as well as reading up on the news.

Otherwise, a good way to go, especially for newer investors with a limited number of strategies at their disposal, is to know your strategy and select a stock that is ripe or it. This will set you up to execute on what you know, a strategy that has worked for you, a strategy that you like.

Know Your Size

Size is critical. If you opt for stocks that are too expensive, then you'll have limited ability to scale into a full position size over time. This means that you will have to time the market and that is super difficult. It is much better to try to time the market, and to be able to try multiple times. By the end of all of those trials, you should have the best average price for the position.

Know Your Entry and Exit

We as retail investors are usually pretty good at knowing our entries. We even nail the exit when the trade goes in our favor. However, we often stumble trying to find the exit when the trade goes against us. To help in this specific scenario, we want to know the exit ahead of time.

If the trade goes against you, how much are you willing to lose before you pull the eject handle?

This is really important and often over looked. I ask people what their exit is all the time and they are so confident that the trade won't go against them that they don't think about it. Then one day they wake up and are at a 20% loss. They decide to stick with it. Next day, 30% loss, then 50% loss. Now they don't know what to do.

It is best to avoid this "on the fly" decision making because trading can be very emotional. This type of decision making often leads to chaotic results. Sometimes the trade will come back and sometimes it will go to full loss. Amidst all the chaos, the investor typically loses. Over the long run, this is no way to invest.

Instead of that, simply decide what your exits are before placing the trade. That is the plan. Plan it and stick to it. This way you can formulate repeatable trades and lower your overall anxiety. The more consistent and repeatable, the better off you'll be in the long run.

Stick to the Plan

Plan the trade, then trade the plan. Once you plan the trade, there actually is nothing to worry about. You will simply operate it like a robot in reaction to changes in the market and the stock or ETF.

This allows you to use the scientific method to create a trading system that is uniquely yours. And you can do that with the help of Tiblio by using our trade journal. If you journal your trades and look at the expected value return per trade over time, then you can adjust your strategies, make changes and ultimately find a strategy or multiple strategies that work out very well.

But if you're not consistent, if you're chaotic, and changing your mind all of the time, making decisions on the fly. Then you will never be able to understand what works and what doesn't. you will never be able to create a solid, ROI positive strategy that you can use day in and day out.

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