Creating a Sample Trading Plan Using EMAs for Entry and Exit
When it comes to trading, having a well-defined plan is crucial for success. In this blog post, we will explore a basic sample trading plan that utilizes Exponential Moving Averages (EMAs) for entry and exit signals. This will keep things simple so that you can focus on backtesting and keeping a log of your trades to figure out what you need to change or what’s working to find your own plan.
Related Videos: Odyssey – Youtube – Rumble
Visit our Partner BitIRA and Supercharge your IRA
Entry Signals for Long Positions
For long positions, we will be looking for two entry signals: a big bullish candle close above the 9 EMA or a pullback and rebound off the 9 EMA.
When a big bullish candle closes above the 9 EMA, it indicates a strong upward momentum in the market. This can be a good entry point as it suggests that the price is likely to continue moving higher. However, it is important to wait for the candle to close above the 9 EMA to confirm the signal.
Alternatively, if there is a pullback in the price and it rebounds off the 9 EMA, it can also serve as a valid entry signal. This indicates that the price has found support at the 9 EMA and is likely to resume its upward movement.
Exit Signal for Long Positions
The exit signal for long positions will be a close of a candle below the 20 EMA. This indicates a potential reversal in the upward trend and suggests that it may be a good time to exit the position. It is important to wait for the candle to close below the 20 EMA to confirm the exit signal.
Visit our Partner BitIRA and Supercharge your IRA
Entry Signals for Short Positions
For short positions, we will be looking for two entry signals: a big bearish candle close below the 9 EMA or a pullback and rebound off the 9 EMA.
If a big bearish candle closes below the 9 EMA, it signifies a strong downward momentum in the market. This can be a good entry point as it suggests that the price is likely to continue moving lower. However, it is important to wait for the candle to close below the 9 EMA to confirm the signal.
Alternatively, if there is a pullback in the price and it rebounds off the 9 EMA, it can also serve as a valid entry signal. This indicates that the price has found resistance at the 9 EMA and is likely to resume its downward movement.
Link to a Course on Stock Trading
Exit Signal for Short Positions on your Sample Trading Plan
The exit signal for short positions will be a close of a candle above the 20 EMA. This indicates a potential reversal in the downward trend and suggests that it may be a good time to exit the position. It is important to wait for the candle to close above the 20 EMA to confirm the exit signal.
Risk Tolerance and Position Sizing
While we have an exit criteria you probably want to put a stop loss at the previous swing low on entry just to cover all bases. Now for the main part of Risk Management, you want to focus on Position Sizing. Typically you would first decide what your risk tolerance is though that is tough if you have no experience. The rule of thumb for most traders is to stick to 1-2% max risk in a trade that is you only risk 1% or 2% of your account size per trade that way if you have 10 losses in a row you don’t wipe out your account and can keep trading. It is not uncommon for a trader to get a few wins and get loose with his entries and stock choice to then chase a win and run up 10 losses. Only risking 1-2% means when you do this you don’t blow up your account. Naturally, we should paper trade for a while to backtest and lockdown our trading plan but once you start to use your money nothing is the same as paper trading. You should keep your position size consistent by taking your risk threshold and multiplying it by your account size say you have $30,000 to trade stocks so conservatives will only risk $300 and the more risky should stick to $600. Now that you have that number you can take your stop loss on your entry and say it is $0.50 then you can buy 600 shares on the conservative and 1200 shares on the more risky side. Pro tip you can go ahead and do this calculation for a few different stop loss values to have a quick guide to reference as you make your trade entry. If you stick to this you will stay trading long enough to be a pro.
Link to a Course on Stock Trading
Testing Alternative Strategies and Backtesting
While the sample trading plan described above can be a good starting point, it is important to remember that there is no one-size-fits-all strategy in trading. It is always a good idea to test alternative strategies and adapt them to suit your trading style and risk tolerance.
One alternative strategy you could test is using different timeframes for the EMAs. For example, you could use a shorter timeframe for the 9 EMA and a longer timeframe for the 20 EMA. This may provide different entry and exit signals, allowing you to capture different market movements.
Backtesting is an essential step in developing your own trading plans. It involves applying your strategy to historical price data to see how it would have performed in the past. This can help you identify any weaknesses or areas for improvement in your strategy.
To backtest your trading plan, you can use charting software that allows you to apply EMAs and analyze historical price data. By going through different time periods and observing the performance of your strategy, you can gain valuable insights and make informed decisions about its effectiveness.
Visit our Partner BitIRA and Supercharge your IRA
Conclusion
A trading plan is a vital tool for any trader, and using EMAs for entry and exit signals can be an effective strategy. In our sample trading plan entering long positions above the 200 EMA, you’ll make sure you are only trading an uptrend and not a ranging market. Remember to test alternative strategies and backtest your own plans to ensure they align with your trading goals and risk tolerance. As always I am not your financial advisor all of my information is for educational purposes only and you should certainly follow your own plan.
Until next time
Hi-Tek Rednek is out
Link to a Course on Stock Trading