Welcome to Follow my trade. I’ve been meaning to do this for a while in order to try and showcase exactly how I go about my trading.
I get asked all the time what kind of process I go through and so I thought this would be the best way to do it.
What I'll do is post up trades at the end of the day or the day after I take them. The reason for this is that I do NOT give buying or selling recommendations.
What I want you to be able to get out of this post is a good understanding of the methods I use in my own trading.
Hopefully you'll get some insights into:
- How I read and interpret the chart.
- Where I'm looking to buy and why.
- How i calculate whether the trade is worthwhile taking or not.
- Why I take the trade, where I take it and my mindset at the time.
- How I manage the trade once I am in it.
- How and where to take profits.
Finally, once the trade is finalized I'll review what worked and what didn't and how things can be improved next time.
So with that all said, lets take a look at a trade I entered today. Its a stock on the ASX that I have followed and traded a number of times.
Billabong International Limited ASX:BBG
Before I do anything I take a look at the larger time frame. So if I am looking to trade the Daily I'll look at the Weekly chart (below) first.
There are 3 main criteria that I look for on the Weekly these are:
- Change of trend - which we can see and is marked.
- Confirmation of a new trend with a higher low (HL) and higher high (HH) in place.
- High volume coming in at the bottom of the trend indicating a selling climax.
All of these criteria are seen on the weekly chart and that why this stock caught my interest. I had in fact been watching it for a while after seeing the high volume potential climactic action show up on a stock scan.
From the Weekly chart I moved to the Daily chart (below), to see what it was telling me.
Again on this chart we can clearly see the trend change and the Higher lows and higher highs in place. I've also marked in the key support and resistance levels and the the uppermost target price I would be aiming for at about $2.50.
Lets zoom in a bit and I'll explain further.
What caught my attention for taking this trade today was the fact that yesterdays bar had dipped down to touch and test support/resistance at $1.60 and its lowest point was very close to the demand line.
For me this is the safest place to take a trade and I calculated my position size based on a $1.57 stop loss (remember always put your stops on odd numbers).
My buy price was to be anything above $1.60 and my target for the trade short term would be $2.00 (the top of the current trend channel) and longer term about $2.50 (the previous highest level).
So I went to my position sizing calculator and input the figures to see if this trade would stack up and be worth taking based on its risk/reward profile. You can see this below.
This is the calculation for a $2.00 target for this trade.
The risk on the trade is 2% of equity ($5000) which is $100.00. The potential profit is $514.29. The risk to reward or R-Multiple is therefore $514.29/$100 or 5.14.
If the R-multiple is 3 or more I'll generally take a trade. The R-multiple for the upper target of $2.50 is even better at 12.29, as you can see in the table below.
So after calculating the risk reward and finding it favorable. I could confidently take this trade and got in at $1.63 - $1.64.
If you have any questions or comments feel free to leave them in the comments section below. I'd be glad to hear your thoughts on this trade as well.