Going into anything blind is a formula for failure. This is especially so when you go into the stock market. There’s an old saying that goes, “Fail to plan and you plan to fail.” Simple words to live by but a lot of people have ignored them and have consequently lost thousands of dollars to the vagaries of the market. If you don’t want to end up losing your shirt on the market, you better start your entry into it by formulating a trading plan.
So, how do we go about doing it then? Well, the foundation of a trading plan is answering these questions:
What is your objective? How much money do you want to earn?
It would be best and easiest to start your plan by setting a definite number for you to aim for every month or maybe weekly. This gives you a specific goal to meet and helps you focus on what you want.
Next, you should choose the particulars of your entry into the market.
What markets are you interested in going into? What commodities or products?
This choice should be based on your knowledge and interests. It’s pretty self-defeating to trade in stocks you’re in for pure money. That’s because a lack of interest usually translates into non-interest in current events in that particular product’s field. Not knowing what’s happening in a market that you’re trading in could be disastrous. Yes, there are some folks who trade in a completely technical manner… based solely on charts and numbers… but when you begin, it’s best to focus on markets that you have knowledge of and are willing to learn about.
After knowing what you’ll be trading in, it’s time to roll up your sleeves and hit the books. Choosing particular stocks in one field is important and this is done by reviewing the performance of the stocks in a particular market. This defines what stocks you will be getting and what your possible strategies are.
Are you going to go for the slow and steady route? Then you’ll want stocks that have consistent performance through the years. Want some quick money? Then look at new stocks moving upwards in recent times.
As I mentioned earlier, choosing stocks goes hand-in-hand with formulating a strategy. These strategies would specify at what price you would start buying a particular piece of stock and how much money to spend on it. They also indicate that positive and negative prices would start selling the shares that you have accumulated.
Your trading plan should also include some specifics: just exactly what sort of trader would you be? A day trader who is focused on the daily market schedule, or a swing trader who goes beyond it?
The plan should also specify how exactly are you going to trade: calling up your broker once in a while or having your own computerized stock ticker on your home PC can make a lot of difference to your profit margin.
Of course, there’s the danger of over-planning: don’t be seduced by all that fancy software being advertised. All you need for stock trading is an accurate way to get stock information and that can be as easy as having Bloomberg TV always on or as involved as the aforementioned stock ticker.
Finally, your plan should have a margin of error or at least a level of adaptability. A lot of things happen on the stock market and you can’t exactly be expected to take into account everything that might happen in the market. Having your plan be able to handle something you didn’t think about can help make sure you don’t accidentally lose money.
A good trading plan can mean the difference between losing your savings or having a nice little retirement, so keep this in your mind as you formulate your own.
Steve Gaghagen is an actor, vocalist, director, writer … and “Recovering” Realtor! Over the last several years he’s become a successful Internet and Network Marketer. Steve works from his home in glorious Big Bear Lake, California, and spends much of his time with his 3 dogs, Roxie, Cuinn, and Toby.