Plan Your Trade & Trade Your Plan

Hello Trader,

Today I wanted to touch on the importance of planning your trade and trading your plan.

There are many ways to find a new trade set-up and we wont discuss that here but I want to focus on what you should be doing once you find a chart set-up that looks good to you.

First things first… Is the market in an up trend, downtrend, at support or resistance? The overall market condition is very important in deciding whether or not to "pull the trigger" on a new trade. Most stocks will move with the market. After all… It is a market of stocks.

Another thing to consider in this environment is the economic calendar. When important data breaks it can rock the market one way or the other with complete disregard for the trade set-up you thought you had working and as such properly placed stop orders are a must.

Finally I would suggest that you look at recent news headlines on the stock as well as the earnings calendar so as to be sure that no corporate actions will be taking place during the reasonable expectation of how long you will be in the trade.

A few handy bookmarks in your browser could easily handle this early research. Many major financial portals carry this information and it should all be easy to find.

As far as actually planning the trade… Avoid a disaster in your portfolio at all cost.

I always look at chart patterns from the outset with an eye for a good set-up with a GREAT place for a stop loss point. The simple reason is that well managed stops will leave your account intact so you live to trade another day no matter what happens on an individual trade.

The next thing I look for is support and resistance on moving averages. If recent candles or bars are giving you a nice chart set-up and you are in the right zone while looking at the moving averages then the odds are with you again. Some key moving averages that I like on a daily chart are the 5, 20 & 50 day moving averages.

Being "in the zone" does not necessarily mean that you are on the "right" side of each, but it does mean than none of them should be posing immediate resistance.

Finally I look at an entry strategy that will confirm my expected market action is taking place and I can avoid speculation that the market might go one way or another.

The final step in a well planned trade is exiting with a profit and moving to break-even as soon as possible.

Always remember that once a trade has moved to break even you win. The trade cannot go against you at this point.

Symbol	Date	Entry	T1$	T2$	T3$	S/L	B/E
JAG	2/28/2010
INCY	2/28/2010
CSE	2/15/2010
STX	2/15/2010
WTNY	2/15/2010
NKTR	2/9/2010
IPXL	2/9/2010
ENTR	2/8/2010

Last month in the Research Lab we had 8 plans that hit the entry prices and all 8 broke through targets one and two and 7 of the 8 hit all 3 targets.

In other market conditions, like now, at the upper end of the range, a prudent trader would take all the profits at target one as the market has been moving up and we are nearing the upper end and will likely have difficulty breaking out to new highs.

Well planned trades will allow you to enter with confidence and not fret so much knowing that you did the research and set your trade with the greatest possible probability.

In the Research Lab when a trade plan is under ten dollars per share the targets are generally 3 – 6 – 9%. On stocks above 10 dollars per share we have targets of 2.5 – 5 – 7% .

Admittedly 7 – 9% targets are "swinging for the fences" and its important to know when the overall market may "get in the way" of chart set-up.

There are many times when we advise taking it all off the table short of target 3 but when times are right its best to let it ride.

Trading is a tricky game. Today’s news driven markets and government intervention make it even trickier. Many investors and traders are giving up on fundamental analysis.