I love to use the famous Mike Tyson quote, “Everybody has a plan till they get punched in the face.”
In trading, if you don’t have a plan, you’re doomed from the start.
And having a trading plan couldn’t be more important in this market…
With so many one-and-done spikers, it’s easy for winners to turn into losers or for losses to pile up.
Developing a well-thought-out trading plan with good entries, exits, goals, and stop losses is the golden ticket to becoming consistently profitable over time.
You can’t rely on hot tips, newsletters, or random advice from friends. You need your own process — a methodical plan.
So, let’s dive into how to create your trading plan. It’s about more than just entries, stop losses and goals…
4 Quick Tips To Create A Trading Plan
In this market, it’s more important than ever to have a trading plan.
We’ve seen so many one-and-done spikers — you don’t want to get caught on the wrong side of the trade.
Just look at big runners like Tempest Therapeutics, Inc. (NASDAQ: TPST) — it had a wild one-day move, then it was over.
TPST chart: 6-month, daily candle — courtesy of StocksToTrade.com
And Secoo Holding Limited (NASDAQ: SECO) which had that big after-hours move and then tanked…
I planned a trade in this one, but it didn’t hit my entry so I stayed safe from a loss.
This is why trading plans are crucial…
SECO chart: 6-month, daily candle — courtesy of StocksToTrade.com
That’s why before even worrying about executing a trade, I like to put the odds in my favor. I call it…
Building the Case
Building the case is like preparing for a battle. You want all the odds in your favor, like having the Air Force and the Marines ready to back you up.
That means looking for clean charts…
Strong stocks breaking out new highs are more likely to attract more buyers and continue the trend.
Beaten-down stocks that are gapping up could have a big bounce and squeeze shorts…
But it needs a catalyst.
This could be a contract win, earnings announcements, or exciting partnerships. Catalysts are like the engine that drives the stock’s movement. They make your plan more solid.
The next thing to look for is a stock in a hot sector.
When a stock in a hot sector has a new product or exciting news, it can get a lot of attention.
But also check a stock’s chart…
Use charting platforms like StocksToTrade to analyze a stock’s history. Stocks that have run in the past can often run again.
Once you’ve built your case, it’s time to make the actual trading plan.
Three Steps to Build a Trading Plan
Before you can make a trading plan, you need to identify support and resistance.
Pick An Entry
On the daily chart, look for key support and resistance levels.
This is where stocks tend to spike, consolidate, and either fail or re-break out.
I like to buy strength, so I look for stocks breaking above key resistance levels for my entries…
Like whole dollar, half dollar levels, or breaking above the premarket high like with my dip and rip pattern.
Understanding support and resistance levels helps you enter and exit trades strategically.
If you don’t understand support and resistance or don’t have the time to plot a bunch of lines on the chart — use our Oracle support and resistance line indicator.
It’s only available on StocksToTrade — try it here.
Set Your Stop Loss
If you don’t have a stop loss, you’re gambling.
You can set your risk based on previous support and resistance levels.
Remember, resistance often turns into support and vice versa. You can also use a previous low on the chart, or VWAP as your risk.
It doesn’t matter which level you use as a risk, just have a stop and stick to it!
Set Realistic Goals
When it comes to setting your goals for a trade, you have to be realistic.
As we’ve seen recently, stocks are spiking and failing fast. So you need to adapt your goals based on the market environment.
Typically I like to aim for at least two to one risk/reward, but three to one is ideal.
Consider the volatility of the stock and its range. Don’t get greedy and know when to take your profits.
Sometimes the best trade is no trade. Exercise discipline when setups don't align. Protect your account.
— StocksToTrade (@StocksToTrade) October 12, 2023
Building a trading plan involves looking for clean charts, finding catalysts, focusing on hot sectors, considering past performance, identifying support and resistance, and setting a stop loss and realistic goals.
Trading is like a battle, and your plan is your roadmap to success.
I help traders build trading plans every day in my free live training sessions…
We go over the hottest stocks of the day, and the tools to help you trade them. Plus, we build watchlists and plans to get you ready for the next trade.
It’s completely free to join these training sessions — sign up here for access!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade