Trade Your Plan And Plan Your Trade
Michele Schneider | Feb 11, 2021 12:40AM ET
With crazy market volatility and wide price swings, having a trading plan couldn’t be more important after a day like yesterday.
At around 10:20 ET the market began to sell off rapidly, turning into a large drop. Though the market rebounded, such large price swings could have easily gotten traders out of the market if they panicked and sold. No matter what type of trader you are, you should have a plan for every trade or position you have. For day traders this is especially important, as a day like yesterday could easily create some nasty losses. Additionally, these are the types of days where emotions love to jump in and make big decisions for you.
There is a common misconception that trading takes nerves of steel. But nerves of steel are far from needed if you have a trading plan.
All the main decisions to trade successfully can be made before entering the position/trade. Decisions like, how much money am I going to risk on a trade and how much will I expect to make from this trade if it works in my favor? At MarketGauge, we like to risk anywhere from 1-2% of our total portfolio or account size on a single trade. For example, if you have an account size of $10,000 and you risk 2%, that will equal $200.
Here is a quick breakdown of what to do next once you know your risk per trade. Say you decide to buy a stock at $10 with risk to $8. If the price goes to $8 you will exit the trade for a $2 loss per share. Knowing this, how many shares can you buy? Well, if you are only risking a maximum of $200 on a trade then you can buy (200/2 = 100 shares) 100 shares X $10 (entry price) uses $1000 of your $10,000.
This is a great way to help plan out trades to manage how much you are will lose if the trade goes against you.
- S&P SPY 385 support
- Russell 2000 IWM Support 218
- Dow DIA 312 support area
- NASDAQ QQQ Held 330 support
- KRE (Regional Banks) Needs to hold $60.00 as new support
- SMH (Semiconductors) 246.79 resistance. Support 232
- IYT (Transportation) support 223 the 50-DMA 233 resistance
- IBB (Biotechnology) 168 support area
- XRT (Retail) 75.28 support. 80.28 resistance
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.