Step by step trading on WWE - part 2 by Redart

Hi, welcome to the second part of the video. If you remember, last time we were discussing a stock WWE that was quite good both from the fundamental point of view and the technical point of view as a long trade. And today I'm going to show you how we can place the trade. So we revise the concept of position sizing, risk management and how to use the interactive broker platform. But before doing that I want to show you something else that you can find in finviz to check the quality of the stock you see here. Finviz will tell you the sector and the industry of the stock. So this is a stock from the services sector and entertainment diversify. An additional check you may do to be even more confident is to see if this sector and this industry are in an uptrend. If you're going long and both sector and industries are going up is even a stronger signal. So you can do it with also ZAX and IBD that I described in a previous video. But let's do it here because it is quite easy and is visual how to do that. Well, let's. This is another thing. This window we can go to. Groups sector and then we click on charts. Now we have to find our services. That is here. And you see that the price this. This orange line is the 50 moving average. The price, the price is going up, is loping up and is above this moving average. So this is a good signal for long. So the sector is good and let's also do the same check for the industry. So we just need to click here to industry. And now we have to look for entertainment diversified. We need to go down a little because there are many industries. I think almost 200 is here. Okay, this is also good. There was a dip on the 50 moving average and now the price is going up. That is similar to what is happening to wwe. So with this additional check, sector is also going up. Industry is also going up. We can proceed with the trade. Now what we have to do, we have to see where to place our entry order, our stop loss and our target. As I said, given the current market situation, I'm not yet confident to just trend follow because the price may be going down again. The S P yes. Is a kind of breakout. The moving averages are saying that the price is in a bullish setting but is not yet clearly above that resistance level. So I will put my target and I discussed this in a previous video. In this case we are using a 2R target meaning we risk 1R and and we are taking profit at 2. If we risk $100. We want to make at least 200. How to do that? Well, I created this very easy Excel file to speed up everything because I don't want to do all the computation every time. So how does it work? You see here, we have to fill the green fields and then we will know the target, the entry limit, the number of shares, and also the R. So how to do that? First thing first, we put the capital. So let's say that we have $10,000. Okay. And the risk? Maybe 1%. Remember, you should not risk more than 3%. It will be quite risky. Usually I risk 1% to be conservative. Meaning if I lose even 10 trades in a row, I have a 10% drawdown, theoretically. So I just need 11% to break even. If I were risking two, I would have a 20% drawdown and I should make, I think 25% to break even. Anyway, after that, what we have to input the entry stop and the stop loss. Now in this strategy, what I will do is this. I will put a stop loss target and then I will put an entry order that is a stop limit. Meaning to say if tomorrow the price is trading between the stop and the limit, the order should be filled. If the price is not going above the stop or it will gap up above the limit, so it will be overextended, then I will not buy. If this is not familiar to you, please revise the videos on the type of orders where all these concepts are explained in detail. Now, how do we define the stop loss and the entry stop? Let's start with the entry stop. So we go back to the chart and usually what I will do is enter above the high because I want to make sure that the price is going up right now the high here, you can read here the values. So if I put my mouse here, you will see that the high is 86.89. For this kind of prices, I will put my entry 5 cent above. So 86.94. So we write here 86, 94. 94. What about the stop loss? Well, the stop loss, I usually put the stop loss below the support. The support here is the moving average. So you may place a stop loss 1 ATR below the moving average. Now, ATR, there are many ways to compute it. You can take the last one based on a 14 times 14 days window. That is the default standard for Tinko Swim, for example. Or you may take an average if you don't have Tinker Swim. What you may do is simply go to Finviz and then they will give you one ATR value here and you can use this one. So this means you will be platform independent. So let's use this. 282. What is the value of the 50 moving average? Well, if we put our mouse here on the 50 moving average, it will be highlighted, but it's actually here is 85 35. So our stop loss will be 8535 minus 1 ATR. That is. That's right, 282. So we just write this, Okay? If we put the equal, Excel will compute for us. So the stop loss is 82 53. And now that these four fields are filled, you will see also all the rest. And this is pre computed. I write the formulas here. So this means we want to take a target that is 2R above the entry stop. The R is this is just the difference between stop entry stop and stop loss. The limit is slightly above the entry stop. What I usually do, I put 0.1 R above and that's what the formula is doing. Number of shares. Again, what is the idea? We have 10,000. We want to risk 1%. So hundred dollars. By buying 22 shares, you are kind of risking $100. Okay? So actually every share you risk 4.41. If you do this, you will see that you are buying 22 shares, risking 4.41 for each share. So you're risking $97. It's not exactly hundred, of course, because you may have fraction, but you cannot buy fractions of shares. And if you buy 23, you will see that you are exceeding your hundred. So this is the highest number for which your risk is below your 1%. Okay? So if you're interested in this Excel file and you want to get it with the formula, you just write me a comment and I will be happy to share it. Now what is left to do? Let's have a look at the chart again because we want to see if these numbers make sense, especially the stop loss and the target. Now the stop loss is 82.53. 8253 is around here. It's not easy to get the right of 8252. Okay, and as you can see is below this pivot point, right? So it's below the support. And we, we need to make sure that it's below here. Because if the stop loss for example was here above, we should lower it. As I said in the previous video, if the price is breaking below this low, then there may be a trend reversal. So we want to exit, but we want to put a Stop loss in a place where basically we are quite confident that if the price is going there, probably our trading idea was wrong. That's why it's good to check if the stop loss is below this level. That's the case. What about the target? Well, the target is 95, 76. Okay, so 9576 is around here. I'll put it here. And what I will do here I will observe that there was a previous high before the stock price went down. So it's also good that this target is below this level because this may be a level where the stock again around here may go down. So having the target here is good because it's below this potential resistance. It's not a strong one because it's only one point, but it's still good to have this. And let's go again here. So we have the entry stop is fine, entry limit. So basically we have everything now to place our order and yeah, I think we can proceed as I said, to place the order. We want to use in this case the Interactive Broker platform. And I will show you how you can easily do that. The order we place is again, if you are not familiar with that, you can check the video. But it will basically be an order such that if the next day we are like the price is between the stop and limit, the order is triggered and then we are in the trade. If the price is not going up enough or maybe it's gapping up too much, so the order is not triggered, then everything is cancelled. And the last thing I would like to mention that is a detail, but it may be important before moving to the trade is that all these numbers, target and R are computed on the assumption that the price, the three the trade will be triggered at the entry stop, meaning we buy at this level, but actually we may buy anywhere between the stop and the limit. So what does it mean? It means that in the worst case you buy at the limit price. Your R is larger, so you may risk a little more than what you wanted. And also your target is closer to the entry price. So basically the reward to risk will not be 2 to 1, but it will be less. Usually what I do, but this is just, I would say a detail at this point is to assume that the price will be filled at the midpoint, so between the stop and the limit. And I use this number for my calculation. But as I say, this is just to show you the process of the trade. This is more technical detail. So let's go to Interactive Broker. Now this is my demo Account and I will show you how to place the trade with wwe. But it's more or less the same with the real account. Now what do we do? First thing first, how many shares to buy? Number of shares is 22. So we write here 22 and buy here. We have to choose stop limit because we are entering with the stop limit and the stop price is 86.94. So we write it here. Okay. And the limit price is 87. 38. Okay, this is done day. Yes, because as I say, this is a daily order. If tomorrow the price is not between these two values, the trade will be cancelled. Now we have to insert the other two things, the stop loss and the target. And this is our OCO order meaning to say if we are in the trade and the stop loss is triggered, the target will be cancelled. On the other hand, if the target is triggered, then the stop loss will be canceled. And this is important because you don't want to have pending orders there where you may do things that you were not supposed to do. Like if you don't. If you hit your target and you don't remove your stop loss and the stop loss is still there and the price is going down, it will be triggered and basically you will be short selling. That is not what you wanted to do. Okay, so stop loss is 82.53. So we have to click here and then order cancel. Another. Sorry, this one we click here on bracket we place good till cancel order. Why? Because if we are in the trade, the stop loss and the target must stay there until One of these two is hit. So what was the stop again? 82.53. Okay, and now the target. That is the profit taker 9576. Great. Now we can check if everything is correct before submitting. So you will see we have a position of almost $2,000. Now my capital in my trading account here is 30,000 something in the. This is again the paper trading. But remember we are doing this position sizing. Assuming we have 10,000. Okay, now buy 22 stop price 86.94. Limit 87. 38. See here, this is quite convenient to check. 22 shares correct entry stop 86.94 good. Entry limit 87. 38. Daily order stop loss is 82.53. Good till cancel and profit taker. So the target is 95.76 good till cancel. So everything seems fine. We can send the order and we have the order here. And you can see the buy value. The buy line here above the high stop loss and the target and tomorrow we see if we are in the trade or not otherwise the order is cancelled and we can look for a new trade. That's all. So in these two videos basically you have seen from the beginning to the end the process to one of the possible ways to look for stocks. Check if the fundamentals are good, if the technicals are good, position sizing you can do it automatically as I said so you don't have to waste time computing all these numbers with the risk of making mistakes. It's true that these numbers are just computed using very simple operations like addition, subtraction, multiplication but trust me mistakes can happen. So I really suggest you to write the formula in Excel and this way you will be sure that the numbers you see are correct. That's all. So if you have any question feel free to ask. You can write me a comment. I will reply and see you next time.