There are thousands upon thousands of securities that we’re able to trade with our broker. And to make things even more confusing, there are thousands of Exchange Traded Funds (ETFs) available for us to trade too.
Obviously, we want stocks to go up when buying them.
However, when is the right time to buy?
You see, you and I can both trade the same stock, and get in for the same reasons…
However, if our entry prices are different (meaning the price we pay to get in the stock at), then we more or less have a different trade with different risk/reward outcomes.
That’s why trading can be so frustrating sometimes.
You can have the right idea, but if your execution is off, then you could still end up with a losing trade on your hands.
I see it happen all the time.
That said, becoming a successful stock trader goes beyond just being “a good stock picker” you also need a strong game plan with an emphasis on risk management.
Now, I don’t consider myself some big shot, “know it all” trader. However, with more than $2.6M in trading profits to my name, over the last ten years, I do consider myself a consistent trader who respects the markets and the risks involved in trading.
So, how I have been able to evolve from being a good stock picker to a complete trader?
How many times have you heard the talking heads on TV, say this stock is up 10%… or the market close down 1%… or something along the lines of that…
… there’s little-to-no information offered there… and it doesn’t really help any of us, especially when we’re looking for our best setups.
Well, there’s one place where there’s a ton of information about a stock’s price action… and it gives us clues as to where we should look to enter, stop out, or take profits. In other words… it allows us to develop a trading plan.
I’m talking about charts here.
You see, when you look at charts, specifically candlestick charts… it’s pretty easy to see where the demand and supply are… and where you should buy and take profits, or stop out.
For example, there’s something known as support and resistance.
Here’s a look at the daily chart on Harley Davidson Inc. (HOG).
You’ll notice a blue line and a purple line.
Levels to Spot Supply and Demand
Now, the blue line is the support level. In other words, the stock has had a hard time breaking below this level. What that tells us is that there are buyers at that level who are willing to step in and purchase the stock.
Basically, what support tells us is that there could be demand at that level.
However, if it breaks below that, it means there’s not a whole lot of demand for the stock… and it’s time to look for a next key support level.
On the other hand, there’s resistance.
The purple line in the chart above is considered a resistance level. In other words, there is some supply around that level. That means there are sellers at this level… and if you’re long a stock, it might make sense to sell your shares before it reaches that level.
However, when a stock breaks above a resistance level… that tells us demand is strong, so the stock could run further.
Now, it takes a little bit of creativity to use support and resistance for entries and exits… and there are other charting tools out there that I like to use like moving averages.
These Lines Can Help Your Trading
For example, when you look at this chart in HOG, you’ll see some lines tracking the price action of a stock.
I’m looking for a specific setup with these lines to time my entries. You see, these are moving averages.
If you don’t know what they are, moving averages are trend following indicators. Basically, these lines help to smooth out the price action and remove the noise… allowing us to clearly see when we should be buying a stock.
Not only that, I’ll use them for targets.
For example, some moving average lines act as a resistance.
Just take a look at this chart in HOG, you’ll notice a green line.
You know what that is?
Well, it’s the 200-day moving average, which can be considered a key resistance level in HOG.
So if I’m long the stock, I’ll be looking around that area to take profits.
Sometimes, I’ll use moving averages as stop loss areas, depending on my chart patterns.
For example, if I’m using one of my simple chart setups focused on moving averages… if the stock breaks below one of those lines… and of course, I develop a plan to back it up.
Now, when I spot my favorite setups, I’ll send out my trading plan to clients each night.
Here’s a look at a watchlist I sent out to clients.
You’ll notice there are buy, stop, and target prices… as well as comments. For example, I’ll make notes above moving averages, chart patterns I’m watching… or anything else I think is important to the stock.
Not only do I provide trading plans and thoughts on the market… I provide clients with a video of my trade ideas, so they can follow along as I walk through each setup.
Now, if you’re interested in learning how to use charts to time your entries and exits… potentially leading you to profits, then click here to watch this exclusive trading lesson.