Eat, Sleep, Trade
Technical Analysis Through Charts
®
Finding The Proper Entry
Getting the Proper Entry is a major part of becoming a successful trader. Buying a stock is just as important as selling one and if you're not buying at the proper time your adding on stress and decreasing your chances of success. Always remember to use Limit Order when buying shares, this will guarantee your purchase price. "Market orders are for suckers, and market makers take advantage of suckers every chance they get."
Positive Risk Vs Reward:
Big loss's can lead to emotional trading, which in term can lead to vengeful trading and larger loss's that can become very difficult to recover from. There is nothing more stressful and emotional in trading then staring a large loss in the face. With the proper entry that offers you a good risk vs reward ratio you can minimize your risk and stress, while allowing the best possible reward. Always keep your risk vs reward at a minimum of 1 to 2, but strive for a 1 to 3+.
Example:
If you are risking $.50 per share on a trade.
Your reward should be $1.00 per share, at least double your risk.
Strive for 3x your risk or in this case $1.50 per share.
Do Not Chase The Breakout:
I can't stress this enough! It's just as important as any other rule and can save you from large loss's if you follow it. Do Not Chase The Breakout! I repeat Do Not Chase The Breakout. Often times when a stock is bullish and trending up it will give multiple entry opportunities. If you miss the breakout simply wait for another opportunity. Chasing a breakout is dangerous and a major cause of failed traders. If you purchase into a large breakout your leaving yourself exposed to excessive down side risk if/when momentum stops.
Take a look at the chart below. Notice the large breakout and high relative volume. During breakouts like these you will notice a very bullish sentiment on social media. This is exactly what the schemers want you to see. They want you to feel F.O.M.O Fear of Missing Out. They want naive people to believe the BS spread on social media to drive the stock price higher so they can dump shares onto you. They want chasers to buy high and continue to hold waiting for another breakout that never comes.
Buying in the "Chase" zone will leave you with large risk when using previous LoD stop.
You should never risk more than 2% of your total capital on any single trade as discussed in our Risk Management section. Always use a positive risk vs reward entry and never chase a breakout. Following these two simple rules will allow you to define your Risk as a trader and allow you to remove the emotional stress that trading can force on to you.
Return to my swing trading stragies and head to the next lesson.