This is one of the best things I’ve learned from following the ZFTs. Some would say it is common sense but the impact of this idea is very important in trading.
How we determine our “potential” trades will determine the whole result of the trade.
Is it a swing play?
Is it a bounce play?
Is it a TF play?
Knowing the play before entering a stock is crucial because it will dictate entry/exit point, cutloss/stoploss points, position size, tranches and timeframe of the trade.
Here’s the 1 year daily chart of BLOOM as of 2/14/2017
As we could see in the chart it made a 6 month breakout last January and the MAs are aligned telling that the stock may trigger a rally to the upside soon, If we determine this as a TF play, then the entry/exit point, cutloss/stoploss points, position size, tranches and timeframe of the trade should align on the trading plan that we are setting up as we monitor the trend that we are following. The actions we would take should be planned and executed as a TF trade.
This is the 3 month daily chart of BLOOM
In this chart , we have 2 trade plays. A swing play and a bounce play.
Again if we determine that we are going to trade the swing, then the parameters of our trading plan would be different from a TF play. A Swing play normally ends once the Swing is finished.
After BLOOM has hit the 8 peso resistance, it retraced and became a candidate for a bounce play(in this case a pullback). For me, the bounce play is the hardest among the 3 because we are trading against a declining price. Normally the bounce play ends once the stock have already bounced and the momentum weakened just like what happened here.
Now, why is it important to determine the play ?
This is actually about trading psychology.
What if you didn’t stop your losses for the swing play when the swing has finished?
What if you didn’t stop your losses for the bounce play when the bounce has finished?
Sometimes or often times, when we don’t follow our trading plan for the shorter plays, we end up resorting to a higher time-frame play which in this case is the TF play.
“Okay lang gain pa naman ako malayo pa ung average ko”
“Okay lang nasa trend pa naman ako makakabawi din agad to”
“Nasa taas pa naman ng MAs ung prices”
“Hindi pa naman bumabalik sa previous darvas”
These are some of the lines that I have reasoned to myself before and trust me they can ruin our trading performance.
Massive time and effort are exerted in planning our trades, I guess we should stick to our determined plays and make them count!
..and the most common line I’ve heard myself saying:
“pera na naging bato pa”