Pandemic Trading Plan
The current coronavirus (COVID-19) pandemic has brought about a significant shift in the overall stock market, with some companies being affected adversely and some positively. Companies falling in the niche of pharmaceuticals (Morderna Inc -MRNA, Gilead Science – GILD, the CVS Health Corporation, and Novavax Inc.-NVAX) and entertainment (Netflix – NFLX) have been witnessed to thrive. Therefore, it would be wise to invest in such stocks. On the other hand, targeting stocks such as Carvana CO. (CVN) and Nike (NKE) that would boom after the pandemic would also be prudent. This is because after the pandmic, the demand for their products will increase. Comprehensive research has to be conducted before buying any stocks, and this includes research encompassing a company’s dividend history, profit margin, equity-to-debt ratio, and price-to-earnings ratio. This information can be directly obtained from the Securities and Exchange Commission (SEC) website. Moreover, I am kept up-to-date by watching several business and capital market television channels, such as Bloomberg.
My goal for trading this semester is to invest in stocks falling within the medical, biotechnology, and entertainment sector, and once I am up $1,000, I will sell at least 5%. This will be facilitated by strict adherence to the formulated trading plan. Furthermore, to improve my trading in the future, I will join a social network group comprising of fellow traders and participate in related forums. I will also perform comprehensive research before investing, and keep a journal weekly to help me reflect on the trading results and expectations.
I often deal in limit and stop orders, in which I invest at a maximum of 3% of the trading account for each trade. When trading retracements, trades should be executed at the 38.2% and 61.8% Fibonacci levels, since they are the most credible levels for a trend continuation. Confirmation of trend continuation must be present for validity before execution. Support and resistance zones are potential areas of continuation and can be targeted using limit orders. Similarly, when trading reversals, the price must be at a significant resistance or support zone. Additionally, the price must show explicit confirmation of the reversal by forming a series of hammers or Doji candles followed by engulfing candles. The trades should be placed on the completion of the engulfing candle.
In the case of indecision to enter at significant levels of support and resistance zones, buy and sell stop orders are to be placed above and below the current price respectively to ensure involvement either way. The two main reasons to exit a trade is to protect profits and to cut off losses. When protecting profits, the trade is only to be exited if the charts show signs of the trend weakness or approach a respected support or resistance zone. The trades can be exited strategically by the use of stop-loss or trailing-stop. On the contrary, when cutting off losses, the trade should be exited only if the charts show trend continuation in the opposing direction or when losses exceed the agreed risk of 3% per trade. This is done by placing stop-loss orders.
When it comes to risk planning, I restrain to a 5% maximum risk on each trade, and the placement of stop-loss orders facilitates this. On the risk to the reward ratio, a trade is only considered invalid if it does not yield a 1:3 risk to the reward ratio or more. Lastly, with regards to position sizing, a maximum of 1.5 lot should be executed for any accounts below $5000.