Trading Guide - Chapter 1
Contents
Prerequisites
This guide will concentrate on the long trade setups.
It would help if you had a basic understanding of technical analysis, price action and candlestick charts.
Candlesticks
Stock support and resistance
Stock volume
Basic chart patterns
Stock trade basics
Trade Cycle
Momentum stock at support
- Enter with bullish indicators (bullish overall, high trade quality) at support with an initial stop.
- Stock rallies with less than bullish indicators; use a trailing stop.
- Exit or tighten stops near T1/T2 targets or at a short-term overbought resistance area.
There can be high uncertainty at the beginning of a rally, so keep the initial stop as wide as possible.
There is a narrow price area for optimal trades.
High trade quality areas happen at support with tight stops and maximum T1/T2 target profits.
Breakout Trade
- Enter trade on breakout level or at a local range support area before a breakout.
- The stock breaks out; use trailing stops.
- At the breakout target or a newly formed resistance area, tighten stops or exit the trade.
Breakouts can occur with bearish indicators, especially near new high areas, as these can also be good short entry areas.
Trade Types
- The StockConsultant is useful in finding 3 types of long trades:
- momentum (with trend)
- bottom
- breakout
- Long trades listed correspond to momentum (with trend) and bottom types at or near support areas.
- A breakout trade is also a long trade triggered when the price moves above the breakout level.
Trade Timeframes
- Typical time for a long momentum or bottom trade to reach target is 1 to 4 weeks (5-20 trading days).
- Typical time for a breakout trade to reach the target is from 1 day up to 2 weeks (5 to 10 trading days); this is a short-term event.
Trade Profit Expectations
Long momentum and breakout trade profit correlate to a stock's size and industry/sector.
- Lowest profit 3-6% on large cap (price 25+, volume > 1Mil), large bank or financial stocks and large technology stocks.
- Medium profit 7-15% on mid-cap (price 12+, volume 300k-1Mil), fast-growing technology and medical stocks.
- High profit 15-30% (and high risk and volatility) on small cap (price <12, at any volume) stocks, biotechnology stocks
Disclaimer: This is NOT investment advice, just general help and opinions. Please check with a registered investment
advisor before making any investment decisions. This
document may contain errors. Chapman Advisory Group LLC employees are not investment advisors. Please review:
https://www.stockconsultant.com/disclaimerpage.html
