Ma. Christine D.

Navarret
BSA III-X
International Business & Trade

Identifying Trade Opportunities, Managing Risk, and

Planning Trades
(Reaction Paper)

Risk management helps cut down losses. It can also help protect traders'
accounts from losing all of its money. The risk occurs when traders suffer losses.
If the risk can be managed, traders can open themselves up to making money in
the market.

It is an essential but often overlooked prerequisite to successful active trading.

After all, a trader who has generated substantial profits can lose it all in just one
or two bad trades without a proper risk management strategy

Identifying outliers should be a routine part of this process. Look at any scatter
graph and the outliers are usually obvious enough – the lone dots cast out on a
limb, far removed from the core cluster of data points. They usually represent
anomalies to a trend, and once investigated, can be explained by a unique
change in circumstance.

Once you find an outlier move, it's time to start planning a potential trade. You
need to identify key price areas of interest so you can better understand how the
stock will behave as the price fluctuates. In order to do this, we look to the left of
the chart to help us predict the right. Basically, this means we are seeing how a
stock reacted to certain price levels in the past so we can better understand how
it may react to those price levels in the future.

Once you know your key price levels, it's time to plan a trade. A trading plan,
together with a trading routine and a journal, build the foundation of my trading.
The benefits of having a trading plan are manifold and they range from reducing
the stress during your trading day, to missing fewer trades, to becoming more
aware of your trading behavior which then allows you to make very targeted
progress and approach trading seriously.
Basically, a trading plan is like a road map for your trading day/week. Over the
weekend, a trader analyzes the markets that he/she considers trading and
creates potential trade ideas.
In the trading plan, traders capture important observations and map out possible
trades. Every trade should start as an if-then scenario where conditions are
established that would trigger a trade entry.