Ask any stockbroker who trades for a living and they will likely let you know that you have two options: 1) deliberately follow a written plan or 2) be destined for failure.
In case you have written an investment or trading plan already, then welcome to the minority. It requires some investment, exertion, and exploration to develop a system that works in the financial markets. While there are never any assurances of guaranteed success, you have dispensed with one significant hurdle by creating an elaborate trading plan.
Every broker must prepare their own plan by factoring in their own trading styles and objectives. Utilizing another person’s plan doesn’t portray your own financial planning and trading ideas.
So what are the fundamental essentials of a strong trading plan? Let’s find out:
Assess your own skills
Is it right to say that you are prepared to trade? Have you checked your system with paper trading, and do you believe with certainty that it will bear results in a live environment of trading? Will you be able to follow your signs decisively? Stock market trading is a clash of taking and giving. The real professionals are prepared and gain profits from the remaining crowd who don’t have a plan and therefore, end up making expensive mistakes & losing money.
Prepare mentally
Have you rested enough? Do you feel fit and fine? Are you in the mood for the challenge up ahead? If you are not psychologically and emotionally ready for the market, go home and relax – else, you risk losing everything. This is most likely to happen in case you are preoccupied, angry or otherwise not focused enough.
Decide on a risk level
What amount of your portfolio is enough to risk on a single trade? This will largely depend upon your risk tolerance and trading style. The measure of risk can change, but ought to most likely be around 1% to 5% of your whole portfolio on any trading day. That implies that if you lose that sum anytime during the day, you escape the stock market immediately and stay out.
Establish goals
Before entering a trade, set reasonable profit targets and reward/risk proportions. Numerous stock market traders won’t pick a trade unless the potential benefit is 3x more than the risk. Set annual, monthly and weekly profit goals either as percentage of your overall portfolio or in terms of dollars. Make sure to re-analyze them regularly to modify & improve your financial planning and trading ideas.
Prepare for trade
Whatever trading program and system you utilize, mark the minor and major resistance and support levels on the diagrams, set alarms for exit and entry signals and ensure all signs can be effortlessly seen or identified.
Don’t forget to set the exit rules
Before you enter an exchange, you should know your ways out. There are no less than two potential ways out for each trade. To begin with, what is your stop loss in case the trade turns against you? It should be documented effectively. Secondly, each trade ought to have a profit target. When you reach there, sell a part of your position and then you can shift your stop loss on the remainder of your position to breakeven point as per your requirements.
Maintain excellent records
Many successful and knowledgeable stock market traders are brilliant at keeping records. On the off chance that they win a trade, they need to know precisely why and how. All the more imperatively, they need to know the same when they lose, so they don’t repeat pointless errors.
Analyze your performance
After every day of stock market trading, summing up your losses and profits comes right after knowing why they happened and how. Document your inferences regularly so you can reference them later.
Keep in mind, losing trades will be there consistently. What you need is to develop an effective and robust trading plan that will help you make substantial profits in the long run.
