Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

Enter with a great risk/reward ratio
Always buy with a good margin of safety. When a stock or index is in an uptrend
and then pulls back to a key price support level, technical oversold level, or
ascending moving average, you can enter with a stop loss that is set outside the
trading range or lower than the key pullback area. The odds of your trade being a
winner are greatest when the probabilities of your stop loss being hit are the
lowest.
After entering in the direction of the trend, you want to be profitable before you
are stopped out for a loss. Your position size has to be small enough to allow you
to manage your emotions so you can stay in a trade until there is a valid reason
to exit.
Your trade size has to be big enough to make a win meaningful, but small
enough to not put your trading account in jeopardy. You should never expose
yourself to the potential of large losing trades. You must be able to survive
losing streaks because they will come. The simplest strategy for risk control is
not to allow your losing trades to cost you more than 1% of your total trading
account.
If you’re trading with 10% of your total trading capital in one position, then your
stop loss can be 10% below your entry for a 1% loss of total trading capital. If
you’re trading with 20% of your total trading capital, your stop loss should be
5% below your entry price for a 1% total trading capital loss. If you are trading
with 25% of your total trading capital, your stop loss would have to be 4% below
your entry price for a 1% total trading capital loss.

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Part of taking an entry signal will be position sizing correctly to avoid any large
losses. Not trading too big will give you an edge over traders that have to go all-
in on every trade because they have small accounts. Position sizing will give you
an edge over other traders and help determine your long-term success. If 1% at
risk seems too small it is likely that your trading account is too small. Your trade
signals will be risking a small amount trying to make a large amount.