Here is why I lke this trading idea...it meets my 7 requirments
Updated
MY TRADING RULES:
I like this trading idea because it meets my seven trading requirements. The idea is to buy TDMI if it breaks its downtrend and rebounds off of the $3.75 level. It is oversold, at an important support level, and has volumes that could signify capitulation. The profit target would be around $5.50, and the stop out would be around $3.75. It makes sense to have a sell target around $5.50. There will probably be resistance there because it was a support level from early March through early July. It makes sense to have a stopout around the $3.75 level because there should be support there. It was the top of the range last year from June though September
The most important trading rule of all time is... - IT IS MORE IMPORTANT TO KNOW HOW TO SELL THAN TO KNOW WHAT TO BUY. YOU SHOULD NOT ENTER A POSITION WITHOUT HAVING YOUR TWO SELL STRATEGIS DEFINED. You need to know where your stop-out is going to be and you need to know where your sell target is going to be and how you will act if it gets there. RULE 1 I HAVE CLEARLY DEFINED TARGETS
You need to THINK ABOUT RISK if you want to be successful. When you enter a trade, don't think about how much money you can make. Think about how much you can lose. You should have an idea about this based on where your two sell targets are. Play defense. RULE 2 I CAN MAKE 3x MORE THAN I CAN LOSE WITH THIS IDEA
CONSIDER THE POSITION-SIZING DYNAMICS based upon the risk exposure of your positions. For example, if you put $1,000 into an option that can expire worthless, then it has the same risk exposure as putting $10,000 dollars into a position that is limited to a -10% loss...in each case your loss will the theoretically maxed out at ($1,000). RULE 3 I KNOW MY MAX LOSE AND MAX GAIN BECAUSE I KNOW WHERE MY SELL LEVELS ARE
Don't get your ideas from your friends at the Club or from some moron on CNBC. If you want to give away money you are much better off giving it to a charity. RULE 4 LEARN HOW TO DEVELOP YOUR OWN IDEAS.
You should HAVE A VALID REASON TO TRADE. It shouldn't be just because you're bored. Your idea should be based on rules that you develop. You should write down your reason for entering the trade. If you can't put it into one paragraph then you should 'walk away' because you are probably going to lose money.' RULE 5 I HAVE A VALID REASON TO ENTER THIS TRADE - OVERSOLD AND AT SUPPORT
Remember that it is more important to make money than to be right. DON'T BE MARRIED TO AN IDEA. This is frequently the case when a stock is down big and investors or traders try to catch the exact bottom. This is driven more by the human instinct to be correct then by logic. But too many times this leads to investors being run over, or "catching a falling knife." You won't catch the exact bottom but from a risk reward standpoint it makes much more sense to wait until the trend reverts and enter the position when it is on it's way back up.' RULE 6 IF THE RULES DONT WORK I'LL CANCEL THE ORDER
DON'T OVERTHINK or waste time by becoming afflicted with 'paralysis by analysis'. Follow these steps and you will increase your chances of success. RULE 7 MY RULES ARE CLEAR SO I WONT OVERTHINK
- IT IS MORE IMPORTANT TO KNOW HOW TO SELL THAN TO KNOW WHAT TO BUY
YOU SHOULD NOT ENTER A POSITION WITHOUT HAVING YOUR TWO SELL STRATEGIS DEFINED
CONSIDER THE POSITION-SIZING DYNAMICS
LEARN HOW TO DEVELOP YOUR OWN IDEAS
HAVE A VALID REASON TO TRADE
DON'T BE MARRIED TO AN IDEA
I like this trading idea because it meets my seven trading requirements. The idea is to buy TDMI if it breaks its downtrend and rebounds off of the $3.75 level. It is oversold, at an important support level, and has volumes that could signify capitulation. The profit target would be around $5.50, and the stop out would be around $3.75. It makes sense to have a sell target around $5.50. There will probably be resistance there because it was a support level from early March through early July. It makes sense to have a stopout around the $3.75 level because there should be support there. It was the top of the range last year from June though September
The most important trading rule of all time is... - IT IS MORE IMPORTANT TO KNOW HOW TO SELL THAN TO KNOW WHAT TO BUY. YOU SHOULD NOT ENTER A POSITION WITHOUT HAVING YOUR TWO SELL STRATEGIS DEFINED. You need to know where your stop-out is going to be and you need to know where your sell target is going to be and how you will act if it gets there. RULE 1 I HAVE CLEARLY DEFINED TARGETS
You need to THINK ABOUT RISK if you want to be successful. When you enter a trade, don't think about how much money you can make. Think about how much you can lose. You should have an idea about this based on where your two sell targets are. Play defense. RULE 2 I CAN MAKE 3x MORE THAN I CAN LOSE WITH THIS IDEA
CONSIDER THE POSITION-SIZING DYNAMICS based upon the risk exposure of your positions. For example, if you put $1,000 into an option that can expire worthless, then it has the same risk exposure as putting $10,000 dollars into a position that is limited to a -10% loss...in each case your loss will the theoretically maxed out at ($1,000). RULE 3 I KNOW MY MAX LOSE AND MAX GAIN BECAUSE I KNOW WHERE MY SELL LEVELS ARE
Don't get your ideas from your friends at the Club or from some moron on CNBC. If you want to give away money you are much better off giving it to a charity. RULE 4 LEARN HOW TO DEVELOP YOUR OWN IDEAS.
You should HAVE A VALID REASON TO TRADE. It shouldn't be just because you're bored. Your idea should be based on rules that you develop. You should write down your reason for entering the trade. If you can't put it into one paragraph then you should 'walk away' because you are probably going to lose money.' RULE 5 I HAVE A VALID REASON TO ENTER THIS TRADE - OVERSOLD AND AT SUPPORT
Remember that it is more important to make money than to be right. DON'T BE MARRIED TO AN IDEA. This is frequently the case when a stock is down big and investors or traders try to catch the exact bottom. This is driven more by the human instinct to be correct then by logic. But too many times this leads to investors being run over, or "catching a falling knife." You won't catch the exact bottom but from a risk reward standpoint it makes much more sense to wait until the trend reverts and enter the position when it is on it's way back up.' RULE 6 IF THE RULES DONT WORK I'LL CANCEL THE ORDER
DON'T OVERTHINK or waste time by becoming afflicted with 'paralysis by analysis'. Follow these steps and you will increase your chances of success. RULE 7 MY RULES ARE CLEAR SO I WONT OVERTHINK
Trade active
Rule 1 - I have clearly defined targets for my two sell orders. My sell target is at $5.45 and my stop-out level is $3.70.Rule 2 - I can make much more than I can lose. If I buy it on the way up at $4,20, for example, and get stopped out at $3.70 it is approximately a (10%) loss. If I buy it at $4.20 and sell it at $5.45 then it is approximately a +30% gain. The odds are that I will buy it at a lower price than $4.20 so these are conservative estimates.
Rule 3 - I know my max loss and max gain because I know where my profit and stop-out levels are.
Rule 4 - This is my idea.
Rule 5 - I have a valid reason for entering this trade. It is oversold, at support, and has had possible capitulation volumes. The trigger for entry will be a break of the downtrend line.
Rule 6 - If the it doesn't workout I will cancel. For example, if it trades sideways for more than a week I will walk away.
Rule 7 - My rules are clear so I won't overthink it.
Note
Im still watching this because it still hasn't broken its downtrend line
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