Your first trade: a step-by-step walkthrough

Your first trade should be boring: planned on paper before the market opens, small, and with the exit decided in advance. Here is the whole process, one step at a time, with real numbers.

Lesson 13 of 76 · 3 min read

Before you buy: write the plan

A trading plan is a few lines written before you enter: what you buy, why, where you get in, where you get out if you are wrong, how many shares, and when you take profits. Writing it down forces you to think while you are calm, not while the price is moving.

Step 1, choose a stock from a screen. Use the screener to narrow thousands of stocks to a short list, for example leaders with strong earnings, a high RS Rating and good daily volume. Then open each one on the chart and look for a stock in an uptrend that is forming a proper base (see what is a base).

Step 2, check the market direction. About three out of four stocks follow the general market. If the major indexes are in a correction, wait. Your first trade should happen in a confirmed uptrend (see market direction).

Entry, stop and size: a worked example

Step 3, find the entry. Suppose your stock has a base with a pivot (buy point) at $50.10. You only want to buy if it breaks above that level on rising volume, and no more than 5% above it (see pivot and buy zone).

Step 4, set the stop. Decide where you are wrong before you buy. A stop 7% below the entry is $46.60, so you risk $3.50 per share (see stop-losses).

Step 5, calculate the position size. Your account is $10,000 and you risk 1% per trade, which is $100. Divide the dollar risk by the risk per share: $100 ÷ $3.50 = 28.6, rounded down to 28 shares. The position costs about $1,403, roughly 14% of the account. If the stop is hit, you lose about $98, not your account (see position sizing).

Placing the order

Step 6, place the order. Before the open, enter a buy stop-limit order for 28 shares: stop at $50.10, limit at $51. It only triggers if the stock actually breaks out, and the limit stops you from paying too much. If you prefer to wait and watch, set an alert at $50.10 and use a limit order when it triggers. Review the options in order types.

As soon as you are filled, enter the stop order at $46.60, sell 28 shares, good-till-canceled. Do not leave this for later. Then log the trade in the Portfolio with its entry, stop and reason.

While you are in the trade

• Check the position once a day after the close, not every minute.
• Never lower your stop. You may raise it as the stock advances, for example to breakeven once it is up 10% or more.
• Know the earnings date in the earnings calendar and decide in advance whether you will hold through the report.
• If the market turns into a correction, be quicker to protect your gains.

The exit

Step 7, exit by the plan. If the stock falls to $46.60, the stop sells it and you lose about $98, or 1% of the account. That is a normal, planned outcome. If the stock rises 20% to about $60, you can sell most or all of it for a gain of roughly $278, almost three times what you risked (see taking profits).

Win or lose, write in your trading journal what happened and whether you followed the plan. Following the plan is the real goal of your first trade.

First trade plan ($10,000 account, 1% risk)

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