If you talk to successful stock traders, you’ll find one thing in common wigth all of them. All of them have good, workable trading plans that they’re comfortable with. When you’re planning to go into the stock market, you could do worse by emulating these success stories and having a plan. Let’s be clear though, trading plans are more than just rules for trading, when to buy and sell all of those stocks on the open market. Those rules are actually trading strategies and are a subset of a trading plan. Let me run you through to what’s essentially a simple trading plan.
RULE #1 – SET YOUR GOAL
Every trading plan starts with a goal. Some trading plans have nebulous goals like: “I want to be rich before retirement,” but you quickly find out that plans with such far-reaching goals usually fail. Realistic, measurable goals are what you find in good plans. What do I mean by realistic and measurable? First, the goal is reachable and possible for the trader and also gives a definite gauge for a person’s level of success. Experienced traders usually define this goals by setting a profit/loss margin for a particular span of time. Trust me, you’ll know if you’re a success if you have a definite profit target at the end of the week. Even if you don’t reach it, you can see how much you have to go and you’ll strive for it.
RULE #2 – CHOOSE YOUR MARKET
Another part of a trading plan is having a definite market or field to target. This actually gets even more specific with particular stocks chosen for how they will help a trader achieve a goal. A good trader chooses a field that he’s interested in or has easy access to information about. This is because the stock market is a fluid thing and the only way to make sure you don’t get any nasty surprises is to always have your ear to the ground for any developments or trends that may affect the price of company stocks. Being interested in a field also translates well into this and most traders have a preferred field or commodity that they focus on. Information is money in the field of stocks and when you’re interested, you’re more attentive to something.
RULE #3 – SET YOUR STRATEGY AND FOLLOW IT
Finally, entry and exit strategies into a market are formulated to reflect a trader’s personality. A daring trader can wish to make his margins of acceptable higher or a more conservative trader would lower his negative sell price a bit higher, so as to avoid a larger loss. All of this is mostly done to assist a trader to accept a trading plan’s instructions for them. Going against personal instinct is a hard thing, that’s why traders tailor-make their strategies to match their temperament. Any disagreement between a trader’s “feelings” and the trading strategy selected can cause a moment of indecision. With the lightning speed of the rise and fall of stocks on the market, that moment may be the difference between thousand dollars of profit or a thousand dollars of loss. \par
There you go, a simple guide to how trading plans work and how to make one. If you’re interested into going into the stock market, you better try your best to make a good one and to follow it well. A good plan always succeeds after all.