A trading plan is the secret weapon of successful traders. It is the best stock trading kept secret. Even old traders don’t do it, preferable to trade of the cuff and losing hard-earned money, time and pride.
It is the roadmap that defines your objective in stock trading. That objective must be measure-able whether in terms of money making, time spent; profits per $1000 invested or any other specific indicators.
The trading plan is then carried out thru kaizen activities ( continuous improvement) of deciding a definite plan, do or carry out as planned , compare the results obtained against the plan and then analyzing what went right or wrong with the execution. If necessary, revise the plan before beginning the next cycle of trading. It requires discipline to update a daily journal to record day by day trades, assessment and analysis.
It takes care of your decision on what sort of markets, be it in bonds, mutual funds, stocks, forex, commodities etc you want to trade, type of data you need and any corporate data gathering or charting or trading software you would need to carry out your online trading activities.
It sets out rules of choosing your low-risk trades, study of pre-trade and post-trade analysis, risk reward ratio, type of market whether choppy, trending, volatile. It helps to ensure you have studied the indicators whether the stock fundamentals, chart or technicals are in order before you enter the trade. Plus you, after the trade, win or lose, must be aware of the need to review entry and exit points, what decision or facts you were thinking at that time.
It sets the money management rules of entry and of exiting the trade when winning or when losing. And the amount of money you are willing to lose or gain in each trade before you start to purchase the stock.
The trading plan calls also for self-assessment of your mental states, stock trading and stock knowledge and personality. It includes your risk appetite, capital available plus daily physical and mental preparation prior to trading each morning.
Hence the trading plan helps you to achieve your wealth by giving you an edge so as to give you the confidence of trading without fear and greed. The plan is always evolving when the changes are observed in the market, your capital available and your risk appetite.
Remember, for beginners in stock trading, this is the best investment tip, “If you ain’t got a trading plan you ain’t got an edge at all!”