Trade Stocks

Trade Stocks

The keys to success in trading stocks…

Trading stocks is a new beast.  There was once a time where one could take his retirement and place a few bucks here and there in some good ole’ blue chip stocks and in 10 years WALA he would have a million dollars in the bank. Wasn’t hard for many years.  You had a good job, you self directed your IRA and BAMO you were independently wealthy in a decade.

If you could trade stocks you could be rich. I knew a boat load of dummies that made a fortune trading stocks. Things are different now.  Different than they ever have been before.  Gone are the days where you could trade stocks with a handful of blue chips, leave your money in for the long haul and make a killing.

LONG GONE in fact.  Luck is no longer a solid strategy when you trade stocks.

Gone are the days of long term BUY AND HOLD!

Trade Stocks With Candlestick Patterns

If you are going to trade stocks in today’s stock market, whether its options or stocks alone, you need a solid strategy that includes signals and trigger entries, multiple time frames and a few solid indicators.

Lets get into it.  This is just enough information to give you a solid understanding of what’s required and enough to get you into trouble trading stocks, so make sure you use this information for educational purposes only, more specifically on a paper trading account.

lets define the difference between a signal and a trigger because this is a critical component to a solid strategy.

A signal is an area on a chart where you have identified a red flag.  A place where you have said when price reaches this point I should pay attention.

The key is PAY ATTENTION and NOT to enter a trade.  The trigger is where you enter.  You have received a solid signal, you have identified your trigger, and then and ONLY THEN, do you enter the trade.

Lets take a look.  In the diagram below my signal was price hitting the black resistance line.  My trigger was the low of the first candlestick in the swing high as indicated below.

Trade stocks

Notice that it is possible to get a signal and then not get a trigger.  In this case our trigger was set-up so that if the trigger hit it would confirm the new direction.  If your going to trade stocks with a high % of success you need to clearly identify what represents a signal and what represents a trigger.

In this way you will be able to improve your system over time.  Without clear and precise entry and exit rules you will have nothing to improve and modify in your attempt to attain higher returns.

Formulate a plan before you start to trade stocks and you will have a much greater chance of succeeding.  You can use the form above to enhance your stock trading plan and learn.

Here’s a plan you can use to start with. A plan you can change and adapt to suite your style and risk tolerance.

Also keep in mind that a trigger is a very personal thing. We all may share a signal but a trigger has everything to do with how much risk your putting on the table.

We can take the same trade and your trigger may be a bit different than mine.  Your trigger may be the close of the candlestick as indicated above OR it may be when the next candlestick closes below that candlestick.

The give and take is two fold.

Trade Stocks with Candlestick Patterns

One is your entry relative to your stop – A direct reflection of the risk you have in the trade, and the other is the move you miss by waiting for more confirmation.

Then of course once the move is in full force its harder to get a good fill and the spread between the bid and ask is accelerated and therefore you don’t make as much money.

So when you trade stocks this stuff is critical in your signal and trigger decision process.

When you trade stocks you need to consider first your entry relative to your stop this is directly related to what you will call your trigger.

Fore example…

Trade stocks

If we said that our signal was the lower black support line, we could say that the green line is the trigger.  The green line represents the high of the first candlestick to touch the black line. The candlestick is indicated by the red arrow.  So we could put our stop at the RED LINE and our TRIGGER entry is the green line. The difference between the green line and the red line is our risk. Now take a look at the same set-up from a different perspective / trigger. Same signal different trigger.

Trade stocks

In this case we use the same signal indicated by the red circle.  Right when price hits support we say to ourselves OK, this might be a trade.  In this case it takes 5 days to make it to our trigger which is the previous swing high resistance.  Once price penetrates this level we will have our trigger. This is how you trade stocks.

The beauty of this trade trigger is that once price penetrates this AREA this line becomes support immediately. If that support line is broken the trade is no longer valid and a stop equal to or slightly lower than this area is appropriate for a stop resulting in MINIMAL loss in this trade.

Trade stocks like this and prosper.  These are the beginnings to long term wealth in trading stocks.

Trade stocks – conclusion; when it comes to trading stocks you just need some rules to follow, these rules should include a close look at swing structure and always consider candlestick patterns.

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