The Daily Trade Setup Sheet :

This narrative is intended to explain how to use the daily trade setup sheet and help ensure that there is no misunderstanding of it’s intended use or meaning. In addition to what you see below, I recommend that you read about my trading style and philosophy here

“Pull Back (at least)”

This means that before I want to purchase (or sell short) a given stock, I first want to see it pull back (or in the case of a short, a rise) to at least the price listed. If that happens, then I’m interested in initiating a position in the stock at the Enter price, which is explained below. If the stock never pulls back to the price specified, it typically changes the risk-to-reward ratio enough that I’m not interested in it.

“Enter”

This is the price at which I would consider purchasing (or selling short) the stock if it moves just beyond that price. For example, if I say the Enter price is $3.95, then I would initiate a position in the stock as it starts to trade through that price, say to $3.96 or $3.97, but I will always initiate the position as close to that price as possible.

“Stop Loss”

This is the price that I will sell the stock (or in the case of a short, cover my position) if the stock moves in a direction adverse to my position. It is important to point out that while I will at times watch to see how a stock trades at or near my stop price before making a final decision to close the position, it is critical for all traders to have absolute discipline and take small losses on losing trades rather than allowing them to become big losses. For purposes of the daily trade setup sheet, this is the price that a position should be closed if that price trades.

“Approx. Target”

This is the price that I expect the stock may be able to reach if the trade develops as anticipated, and it is the price that I plan to sell my position. This price is approximately where it appears that sock can trade to, but it may be appropriate to liquidate some or all of the position either prior to reaching that price, or even beyond that price if there is a parabolic move in the anticipated direction. Think of it this way: it’s a guide to help understand where it would make sense to consider closing all or part of the trade. Don’t think of it as an exact price that must be attained; rather, it is a guide.

“Rew:Risk Ratio”

This is the ratio of how much risk is being taken on the trade versus how much profit is anticipated on the trade. Risk is the difference between the Enter price and the Stop Loss price. Reward is the difference between the Enter price and the Approx. Target price. The reward-to-risk ratio is important because any good trade stands to reward you much more if right than you are risking if wrong.