Step One – Identifying Potential Runners
In scanning Philippine stock market, I am looking for a stock priced from Php 0.50 to Php 5.00 with a traded value of more than Php 10M on a particular trading day. Once I spotted that stock, I will first check its liquidity before including it in my watch list. That's the time, I will closely monitor it.
Step Two – Qualifying the Setup
Once included in my watch list, I will check the technical aspect of the stock including moving averages, consolidation period, and the position of the price in relation to waves (as taught in Elliot Wave Theory). If the stock has just recently rallied, I will check its Fibonacci retracements and the tightness of the price plus the drying-up of the volume before entering the trade.
Step Three – Entering the Order
After qualifying a potential set-up, I will set an entry price, a target price, and a cut loss price. Though usually I place my order near the support area, still my entry depends on the strength of the trend and based on that observation, I make adjustment. Usually, I deploy 50% of my capital for a specific stock, and I double it once the price drops 0.10 to 0.20 points from my entry price. This strategy seems contrary to my cut-loss, but it works for me. Still, the important thing for me is how I interpret the psychology of the buyers and sellers of my chosen stock. If there is an unusual action that does not fit my expectation, then that’s the time I immediately exit.
Step Four – Managing the Order & Taking Profits
As for taking profit, though I set my target price, still my decision to sell is determined by my interpretation of the strength of the trend. If the price is still in its early stage in its wave movement, I am more inclined to tolerate the volatility and to simply sit waiting for my gain to grow. But once I discerned an anomaly, and the stock appears to struggle to make a new high, that to me is a signal to close the trade. Of course, there are times that my intuition is wrong causing me to exit earlier than I supposed to. That’s part of human limitation. No one knows exactly where the price is going.
Step Five – Post Trade Analysis
This is the part I like the most, writing my trades in a journal. In my analysis, I observe that stocks do not behave in the same way. Each has its own unique character. This is the reason why I do not want to enter a stock that I haven’t observed its behavior for some time. I usually trade stocks that are familiar to me. If there is a new “wild horse” in my list, I tend to observe it first. Once I think I know the character of the stock, that’s the time I trade it.
After more or less five (5) years of trading in Philippine stock market, I now join those who emphasize the importance of a trading plan. Most of my losses in the past are results of my failure to follow such plan. I also observe that no matter how cautious you are in your analysis, still there are price movements that you will fail to accurately interpret. My recent experience with $SOC illustrates this point. After studying $SOC's set-up, entering it, and holding it for a week, I started to have a doubt when unexpectedly, the stock started to run. Thinking that the run cannot be sustained, I immediately exited with a minimal gain, planning that once it pulled back, I would re-enter again. But to my surprise, the stock reached its ceiling price twice before it started to struggle. $SOC shook me out of the trade and left me missing a ceiling play. Such reality is unavoidable and must be accepted. In trading, there is no place for regret. This field is tough, and not knowing how to deal with your emotion is just making the field tougher for you.
