Techniques for overseeing the complete life cycle of a trade

The pivotal elements of any transaction's outcome lie in the entry and exit points, as well as the events that transpire in between

Oct 18, 2023 - 11:42 Updated: Oct 18, 2023 - 11:44

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Techniques for overseeing the complete life cycle of a trade

The pivotal elements of any transaction's outcome lie in the entry and exit points, as well as the events that transpire in between. Traders and investors can significantly enhance their chances of success by grasping the entirety of a transaction's life cycle, encompassing pre-trade research through post-trade analysis.

Determining optimal trading timing

The initial step in the trading process involves identifying the motivation behind a transaction. Understanding these motivations is vital to achieving success, which is why traders must maintain an objective perspective. Subjectivity can pave the way for emotions such as fear and greed, hindering judgement and leading to ill-advised trading decisions.

Consider the purpose behind each trade. What drives this particular transaction? Is it related to changes in stock prices or earnings announcements? Assessing an investment's compatibility with one's overall portfolio strategy and goals is crucial.

TradeFxp, a cutting-edge trading platform, equips traders with an array of technical and fundamental analysis tools to evaluate assets and establish trading objectives. Additional information tools like live news feeds, curated watchlists, and abundant learning materials further enhance its capabilities.

Positive earnings reports and favourable technical indicators are just two examples of the many factors that can support the achievement of a trading goal. To ensure a well-informed goal, it is advisable to rely on three reliable indicators rather than intuition alone.

By adopting an objective entry technique instead of a subjective one, one can evade decision-making mistakes.

Navigating through the holding phase

The holding phase encompasses the period from entering a trade to exiting it. During this waiting period, there are several strategies for managing emotional responses.

Avoid incessant monitoring.

Becoming entrapped in constant position-monitoring is a common pitfall for novice traders. Experienced traders understand that reevaluating a position depends on specific circumstances. Short-term stock trades or near-expiry options contracts may require closer attention, while dividend stocks intended for long-term investments necessitate less frequent scrutiny.

Keep tabs on the market.

The TradeFxP user interface facilitates trade monitoring. By selecting "Alerts" from the MarketWatch menu and entering a ticker symbol, users can track price and volatility levels, technical indicators like overshoots, and fundamental triggers such as dividends and earnings announcements. Alerts can be received via email or text message, accessible at any time through the service.

Establish notifications.

Within the MarketWatch menu, select "Alerts," enter the stock's ticker symbol, and click on "Study Alert" to set preferences (refer to Figure 2). Furthermore, stop-loss and take-profit levels can be established to trigger automatic fill orders for a transaction. Many traders employ conditional orders like OCO (one-cancels-other) and bracket orders to put their plans into action without constant monitoring.

Maintain vigilance.

Long-term trades typically require less hands-on trade management than their shorter-term counterparts but still demand close attention. Significant changes in underlying fundamentals, for example, might warrant exiting a longer-term trade based on such indications. In technical analysis, if a trend breaks down, it may be an opportune moment to exit the trade, regardless of its profitability. Remember the initial reasons behind the trade? Even if a trade has yet to reach its profit or loss target, it may be wise to reconsider retaining it in one's portfolio if those reasons no longer hold true.

Some investors take into account the opportunity cost of a business—how funds allocated to one venture compare against those invested elsewhere. The time spent monitoring trades can also be viewed as missed opportunities. If frequent monitoring hampers one's ability to pursue other endeavours, it may prompt a trader or investor to consider leaving the industry altogether.

Adapting business practices

It may take several days or even weeks for a plan to come to fruition. However, transitioning from one phase of a trade's life cycle to the next does not always entail "sell or hold." It is possible to make adjustments to a trade. Traders employ various strategies, such as selling covered calls or buying protective puts, to hedge their long stock positions and generate income while safeguarding against potential losses.

Trading options or adding option positions to an existing stock investment offer a range of techniques, strike prices, and expiration dates. However, it is crucial to weigh potential benefits against potential losses, as option trading entails significant risks.

Swapping exit plans

When contemplating whether to exit a trade, it is essential to keep one's goals in mind. Here are two considerations when selecting an exit strategy for a trade:

Deciding to exit the trade

In the previous example, one of the initial targets for the trade involved bullish technical signals and a robust earnings announcement corroborated by news.

Several factors come into play when deciding whether or not to exit a trade. Employ fundamental analysis, technical analysis, and even consider news events. A trader may opt to exit a position when the initial conditions that prompted the trade no longer hold true. Perhaps subsequent earnings reports fail to match the initially reported strength, or technical analysis indicates resistance levels or other potentially negative indications.

Regardless of whether profit was made on the trade or not, if the reasons behind initiating it cease to exist, it is prudent to exit. While no one likes exiting without profit, doing so can free up funds for another opportunity.

Another approach involves employing meaningful figures as benchmarks in pursuit of one's goals. Some traders establish profit and loss targets—for instance, aiming for a 5% profit versus limiting losses at 2%. Alternatively, others determine when to halt based on monetary values—a $7.50 gain versus a $3 loss per share on stocks priced at $150.

Implementing stop orders

TradeFxP allows users to set notifications when specific exit prices are reached. A limit order is one of several simple order types that can be utilised to execute a trade.

This type of order can be set as GTC (good-til-cancelled), remaining active until either filled (within six months) or manually cancelled. Unlike day orders, GTC orders eliminate the need for repeated trade entries until filled.

Alternatively, a sell-stop order triggers when a position falls to a predetermined price. It is important to note that stop orders are not guaranteed to be executed at or near the entered price. Once placed, the order competes with other market orders.

If constant market monitoring proves impractical or undesirable, traders may utilise limit and stop orders to manage their trades effectively.

Certain investors advise establishing goals prior to entering a trade and exiting once the investment no longer serves those objectives. When engaging in trading or investing, adhering strictly to a well-defined plan can prove invaluable.

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