Welcome to module six of the course in this module we will be discussing setting up your trading plan as well as your trading journal. As always, you're welcome to send any questions to info at exporter mater.com. Starting off with a quote from Alexander elder, he said, it's already hard enough to anticipate what the market is going to do. So at least know what you're going to do, or else the game's lost. I believe that quote can be taken in the context of your trading plan, knowing where you're going to intervene, where you are going to exit. This sort of introduction.

So before you execute any trades, you need to have a plan. As the saying goes, plan the trade in trade the plan. This will help you to avoid a whole world of pain that you will inevitably face if you were to enter trades without capleton each and every aspect of it. I'd like to refer you back to module four, we discussed trading Psychology if you made it good why this is so important. The train plan will form the foundation of executing your age and will allow you the ability to be consistent in executing and managing every trade that you take. So in this module, we will discuss the major components that make up your trading plan itself starts with identifying setups.

So the first step to approaching a trend is to find an identified this can either be done via traditional technical analysis or fundamental analysis, all by utilizing what's called alerts and stock screeners. Stock screeners as explained in Module Three can be used to scan various markets and find specific technical setups based on predefined parameters. alerts are usually one of the core features of your chosen platform and in conjunction with stock screeners or manual identification setups. alerts usually sit and then used to remind or alert you when a certain price level is breached. You can think of them As an alarm, so you would set them based on certain price tables and the place where you'd like to enter into your trade. And so once having Once you have identified your trade setup, you will analyze a stock using a top down approach.

In other words, you would start from a higher timeframe, usually, maybe a month or week, and the move lower to say a one hour or even a five minute timeframe. And you will do that looking for areas or labels of value. Next, you have to use a checklist. So once you've identified a possible trading setup, or idea you need to validate it. The best way to validate the trade is to use what is called a checklist. Now your checklist should be a digital or a literal checklist containing all the injury conditions that need to be true before you enter into a trade.

I'll provide you with an example of some items that you can include in the checklist. Don't worry if you do not understand some The aspects of the duties dispatch as we will do, we will cover some of these aspects in future modules. So, am I training with the primary trained? Do I accept the risk that is associated with my job and stop, have identified a high probability target level? Am I entering the trade from a major price table? Have I waited for confirmation.

Now, those are five items that for example that you'd like to maybe you can also add your own. At the end of the course you should be able to identify your own checklist and create your own checklist and I know a lot of traders actually print this out and place this on the walls to assist them in following rules. Looking at risk reward ratio, so up to this point in the course I've made reference to risk reward ratio Quite a lot. And in this slide, we will look at it in a bit more detail. So as part of the trade validation program process, you need to calculate your risk to reward ratio. What this means is you're calculating the potential profit if your target with to be reached versus the potential loss that you take if your stop were reached and what you stopped out, this ratio is called a risk to reward ratio.

Looking an example, if your interest rate at 100 you have this is going to be an example of a long trade. So let's say you enter a long trade is 100. You have your stop loss set at 95 and your profit level set at 110. In other words, you and you suspect or speculate this strike and move to $110 or Donington level, and yet, if the price would move to 95, you will accept that you are wrong and you will take a loss. In this instance, you're effectively to reward when normalizing your five risk to 10 reward is one to two. So, this would be considered a very good risk reward ratio as your reward is twice the size of your risk.

Now, depending on your trading strategy and its average win rate, you would usually aim for a risk reward ratio of greater or equal to one. position sizing This is very important as this will help you to calculate your maximum risk. Now, calculate your risk reward ratio you need to understand proper position sizing. position sizing basically means how large is your exposure. In other words, how many shares or contracts are you going to buy in order not to risk more than you should, as looking at look at an example. You have $10,000 in your account and you do not want to risk more Than 2%, which would be $200.

So most traders usually go with either two or 3% risk per trade. So on a $10,000 account in looking at this example, you would look at a maximum risk of $200 loss per trade. And so once having identified a trade setup at the price table of 100, with a high probability target of 110 and a stoploss label at $95. Now, in order not to risk more than the $200 that you have identified as a 2% of your account size, that would mean that you can only buy $200 that would be a capital risk with a face with a mountain with a maximum loss of $5. Meaning your stop loss risk that would come come down to 40 shades in this instance, and how I get to that is I say like the $200 Capital risk Which is the maximum risk divided by the maximum risk if my stock goes with the beat, which is a $5, from hundred to 95.

So 200 divided by five gives me 40. And that is the number of contracts I will take and thus be my exposure. So, if the price moves down $5 and you are stopped up, you'd only lost $5 times 40 sheets which is 200. That is 2% of your account. And that is how you work out your maximum risk and as well and also your position sizing. Looking at some risk management, and here's some general tips that you need to remember, if your strategy has a low win rate, you would have to have a higher risk reward ratio.

If you strategy as a high winrate. You need to know where risk reward ratio in order to remain profitable. Now first, calculate the target level and stop loss levels before calculating your risk reward level in order to prevent Moving your stop loss levels closer just to get a better risk reward ratio, it was stopped with labels too tight you will be, you will be stopped out easily and effectively compromised when right and ah. Now what I'm trying to say is that for calculating the risk reward ratio for all the look at the chart, and I'd like to provide you an example quickly and quickly pull up the chart and we have one. So, don't don't mind indicators too much. But this is you're looking at an example of trading view.

And in trading view, we have a very nice tool which is a risk reward tool that will allow you to either calculate risk reward for long position or short position. In this instance, I have drawn a risk reward ratio on the chart. Having said if I entered a disposition having The fight label and target label, which is the blue line, and a stoploss label, which is a green line of V, what you would see is that I hope the price would reach the Blue Label. And if the price were to move side down to the green nipple over here, I would say that I was wrong and I will be stopped out. Now. tradingview automatically calculates your risk reward ratio, and this is as you see, it will be 2.22.

Now, what I'm trying to say is that you first need to identify the chart setup and enjoy your risk reward ratio, because if you first do a risk reward ratio, you might end up setting it up in such a way. For instance, let's look at this scenario. I can see this up of a risk reward ratio of six, which is very good but what I'm going to do is I'm going to compromise some movement room for Stop Loss. So rather first and look at the chart setup and then calculate your risk reward level from there. Okay, so also remember to always use proven techniques as we will discuss in module nine, which is major levels to calculate your target and stop loss levels. Trading journal.

Now another very important part of trading is keeping track of your trades and the conditions surrounding when you enter into and exit them. This is called keeping a trading journal and can be very helpful to identify behavioral patterns that might be sabotaging you. So this again will help you with that trading psychology and aspects that line way to sabotage you. So, having keeping a journal of your trades will help you to have been identifying those behaviors. Now the goal of a trading journal is to help you identify and learn from your mistakes and here are a few aspects thinks that you might want to include in your journal. What was my point of vacations for taking the trade?

Did I follow my rules, according to my checklist? Was my target or stop loss to fall or to close away? And then maybe add some exit comments. Like what would you do different next time in a similar trade situation. So if you sent me an email, I am willing to send you a template for both a trading plan as well as a trading journal that you can use for your trading. That would conclude module six free thank you very much for listening.

And if you have any questions, feel free to mail them to me at info@gmail.com