So hopefully you have read my guide up to this point. And if you followed my suggestion in section XIII: Making Your First Trade, you should have gone through 50-100 naked trades (single sided positions) as of now. If you feel like you have a good handle and good success on those trade (totally fine if you not and need more reps) , it is time to develop more strategies on your trades. In the section following this one XV: Basic Strategies, I will outline some basic strategies to use First, I just wanted to give a broad overview here.
After all your test runs you should have a good working strategy in mind. Maybe a particular stock has a pattern you are detecting or you notice a certain timing during the day that a stock has a small break. Now, it is time to start creating a view based on a very particular strategy to focus specifically on
Setting stop losses/profits
If you have continued to use my 2:1 approach and have had success great job. That will continue to work in the future. But now we can look at adding onto your initial trade, building multiple positions around it, and gain more profit when your strategy has strong indicators
Timing is important going into a trade. Learning what day, month, hour , minute all are pretty important. You may have noticed a certain trend when Asian Markets, European markets close. Or maybe when everyone breaks for lunch. These can now be good indicators not only to jump into your first trade, but maybe to add another leg or double up on a current position
I also hope at this point you are doing a good job keeping track of your PnL. I will go into more detail about this in another post, but your PnL is not only your total gain or loss, but it is also trade and strategy specific . It is important to keep track of each trade and categorize it.
So now that you have the strategy, you enter to the market based on that and get a leg into a position. But now what? We are no longer just looking at 2:1 exit points. Instead we want to add onto that either on the strategies in the next section or just solely based on your own. So what tells us when its safe or a trade has greater odds for success? The best indicator is when another fundamental or analytic comes into play that proves our current view. So let’s say you went long a stock because a new earnings report looked favorable. Now that trade is going well? But not let’s say that trade breaks a current ceiling you had put in place. That 2:1 scenario has already played out but it might not be best to sell because you are giving up more profit. If the price breaks the ceiling and you are using charting, it is time to analyze how the market does in the next few hours or day. You will want to reevaluate and maybe add onto your length by buying more into it. Now you have leveraged more into your position. Now you want to create new exit points based on your new proposed ceilings and floors , while keeping in mind how much equity you have in the position. You might want to exit out earlier so you get to keep some of your previous gains and take less risk. But you might want to keep letting the stock take more gains and increase the exit point profitable to your 2x2 account point, or 4 times your initial trade volume. This may be a little long winded but I wanted to get the essence of this theme across.
I will be making a video of this as well to explain it in more depth and with more examples as this is an important topic. It is a pillar in how you will go about trading in the future. And this thought process is a building block to becoming a long term successful trader and knowing when to double down in a market or if the market is just telling you to get out with the gains you already have. As always, message me with any questions. And make sure to check out my other blogs, guides videos and more. Also , don’t forget to check out my Traveling Guides and blogs. You’ll hopefully earn enough money from this beginner guide to be able to take a well earned vacation.