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Write down four things before buying: why you buy, what breaks the case, what price you buy at, and where you get out.
Decide your reason to sell before you buy. Decide it afterward and your emotions decide it for you.
Write four lines before you press buy. Buying without these four lines is closer to a reaction than an investment.
"It looks like it will go up" is not a reason. Write a fact you can check. For example, it broke the prior high on rising volume while above the 200-day line, or quarterly earnings grew three quarters in a row and the P/E is below the sector average. If the reason is a fact, you can check later whether that fact still holds.
This is the reason for entry turned upside down. If the reason was a breakout, the exit is a close below the breakout price. If the reason was earnings growth, the exit is an announced earnings decline. Write down not a price but the condition under which you admit the reason was wrong.
Write down not the current price but "I buy at this price". Think of the first pullback after a confirmed breakout, or a spot near support. Setting an entry price cuts down on chasing. If the price never comes, you do not buy. A missed opportunity is not a loss.
Decide in advance how far below your entry you will admit you were wrong. O'Neil used 7 to 8% below the purchase price, and you can try values like these in the exit settings of the Confluence Zone backtest. More important than the number is sizing the position by the distance between entry and stop. If the distance is 8% and you allow a loss of 1% of the total, that stock gets only 12.5% of the total.
When the price shakes after you buy, you have something to check. If it does not meet the exit condition, you hold. If it does, you sell. You do not have to make the decision from scratch every time. Confluence Zone's presets and alerts let the tool check two of these four lines for you: the reason and the exit condition.
It is better to keep your stop away from spots where everyone else puts theirs, like just below support. Price gets shaken out there often. Even if the point where you can admit your reason was wrong is further away, cutting the position size to fit that distance beats a tight stop that gets hit again and again. Setting the stop distance by volatility (ATR) comes from the same idea.
This article does not give entry or stop prices for any stock. It covers only the four-line template. You set the values from your own reasoning. Everything here is reference information based on past, public data and is not investment advice.
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