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Why do you need to plan for a trade?

Creating a plan for a trade is an important way to set yourself up for success. Having an idea of how you can create a strategy that will help you reach your goals as well as planning how you are going to time your entry and exit are often critical in successful trading. A plan can help you maintain your focus in trading and stay on the right track, since distractions can result in losses. When you plan for a trade, you are able to set goals that reflect realistic profit and loss targets.

What are entry and exit strategies?

An entry strategy is a plan that helps you determine how you will enter a market. Entry strategies consider many factors, including how much risk you are comfortable with, time length of the trade, and market trends. Planning your entry can help you be more efficient with your money and protect your accounts. An exit strategy is a plan that helps you determine when to exit a trade. Personal fears and emotions can influence your choices, but having a plan can help you exit a trade at a time that aligns with your profit and loss targets. Exit strategies are often overlooked, yet are considered to be one of the most valuable parts of trading. Part of a successful exit is learning to accept that you will often have losses upon exiting, but sticking to a plan can help limit how much you are losing.

Picking entry and exit strategies that work for you

It’s always important to consider why you’re getting into a trade, and to then consider the following factors to help you strategize:

- Time horizon: How long are you planning on being in a trade? Determining your time horizon can be helpful in deciding when to enter and exit. How flexible you can be in trading depends on how long your time horizon is.

- Risk tolerance: How much risk are you comfortable assuming? Knowing the level of risk you’re willing to take on can influence the size of your trade and what your strategy will be.

- Your goals: Why are you entering this trade? Don’t feel the need to enter a trade if it doesn’t align with your strategy. Instead, you can wait until you find an opportunity that you feel better fits your needs.

A common trading strategy is to set a target profit/loss ratio and come to terms with how much you’re willing to lose. Another strategy is to follow the 1% rule, meaning you try not to lose more than 1% of your overall net worth on any single position.

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Tools to create a trading plan

When creating a trading plan, focus on indicators that can help time your entry and determine what strategy works for you. Pay attention to any events that are upcoming that could cause the stock market to shift, then determine if that is the right time for you to act. Listen to what analysts are saying: what are they rating to buy, hold, or sell? You can look for technical indicators that could reveal bullish or bearish sentiments in the market. Additionally, you can watch stocks you’re interested in, and set price alerts for specific stocks.

For tools to help build a plan, you can look at quant ratings, stock sentiments, analyst ratings, and watchlists available through Webull.

Quant Rating

Analysis Ratings

Market Watch

Disclaimer: All companies or symbols provided are for educational and informational purposes only and does not constitute an investment recommendation or advice.

The Bottom Line

Planning out your trade is often critical in managing your profits and losses. Before you jump into a trade, think about both ends of the trade and understand what entry and exit strategies might be appropriate for you. Trading can seem overwhelming at times, but with proper preparation you can be more confident in your trades.

What is your trading plan? Leave a comment and let us know.