A signal describes a condition. A plan separately defines entry, invalidation, exposure, costs and what happens if execution differs.
State the idea and the evidence against it
Specify the timeframe, completed-bar condition and price context before adding MACD, RSI and volume. Write why the observations support a hypothesis and what evidence contradicts it. The same closing prices feed both MACD and RSI; agreement is not independent proof or a measured probability.
This article uses an invented long-stock exercise, not a recommendation for a security or a rule that fits every account. There is no backtested success rate. A decision can also be to make no trade when the scenario or execution assumptions are unclear.
Separate account cash from planned loss
Assume account cash 10,000 and an arbitrary exercise risk budget 100, or 1%. This percentage is merely an example, not a safe limit. Entry is 50, planned stop 47, and a per-share allowance of 0.20 stands for assumed costs and ordinary slippage. Planned loss per share is 3.20.
Whole-share size is floor(100 ÷3.20) =31 shares. Buying them requires 1,550 of cash before extra purchase charges. The intended loss budget 100 does not mean the position needs only 100 of funding or that the rest of the account is protected.
Calculate the ordinary and gap outcomes
If the exit occurs at 47 with the assumed 0.20 allowance,31 ×3.20 =99.20. If the price gaps and the exit instead fills at 44 with the same assumed allowance,31 ×6.20 =192.20. That exceeds the intended budget despite unchanged share quantity.
A stop trigger is not a guaranteed fill price. A stop-limit order adds a price limit but may remain unfilled. The SEC’s stop-order bulletin explains that distinction; your actual order types, trading sessions and broker handling need to be checked before relying on an exit assumption.
Background source: SEC Investor.gov: stop, stop-limit and trailing-stop orders
| Fictional input/outcome | Value | Reason |
|---|---|---|
| Entry / planned stop | 50 /47 | Not guaranteed fills |
| Risk / allowance | 100 /0.20 | Example assumptions only |
| Whole shares / cash | 31 /1,550 | floor(100/3.20) |
| Planned loss | 99.20 | 31 ×3.20 |
| Gap exit at44 | 192.20 | 31 ×6.20 |
Write down events and correlated exposure
Results announcements, distribution dates and market gaps can make a quiet chart change abruptly. Several holdings in the same industry or index can respond together. A separate 100 risk label on each position does not make the portfolio’s combined risk small.
The worksheet does not model liquidity, margin, currency conversion, taxes, portfolio correlation or the full possible cost of a gap. Treat the 0.20 allowance as an input to revise with real evidence, not a cap on fees or slippage. Do not select a trade size solely from an attractive indicator reading.
Review the process without selecting only winners
Record the original hypothesis, planned levels, actual fills, costs, changes and outcome. Separate a correctly followed plan that lost money from an improvised trade that happened to win. Keep canceled or unfilled orders in the private notes when evaluating execution; they can explain why a chart-only simulation differs from reality.
DividenNote can record supported stock trades, fees and dividends. It does not implement this risk rule, broker stops, technical alerts or options positions. The worksheet is a manual companion; do not upload it as a transaction CSV.
Keep essential cash outside the experiment
Before any real decision, compare proposed funding with living costs, known bills and existing commitments. A cashflow tool can help identify those amounts; it cannot certify that speculative trading is affordable or appropriate. The example’s 10,000 account is not a recommendation to transfer that amount.
Use the download to check 31 shares and both loss paths. The objective is to expose the assumptions an indicator leaves unanswered. A separate covered-call series next explains another strategy whose premium can look reassuring while substantial stock risk remains.
Download the learning data and worksheets
Put it into practice
Keep the trading worksheet separate, and use monthly cashflow only to review existing income and spending commitments.
Check monthly cash commitments