Your Stock Trading Plan
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If you were starting your own business, you would normally put together a business plan - if you needed bank or private finance this would be a requirement - but quite honestly even if it were your money, more especially if it were your money, you should prepare one too. So why do you think it should be any different with the business of trading? If you're beginning investing, you need a well-thought out stock trading plan. Purpose of the trading plan |
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What's the purpose of the plan? Having a stock trading plan adds another layer of discipline, which is one of the most important aspects of trading. How much money have you lost on a crazy impulse trade for a stock which you thought couldn't possibly go any lower? I would say that the plan is a pre-requisite for trading - if you can't find the time to sit down, think through, and capture on paper how you intend to trade, you really shouldn't be putting your capital at risk.
Trading plan contents
What should this stock trading plan contain? There is really no fixed format. A good plan plays to a trader's strengths. The trading plan must be custom-built, because every trader has different time horizons, tolerance for risk, and emotional make-up, and the plan must reflect this. The trading system, as set out in your trading plan, should have been back-tested over a reasonable period to ensure that it has a positive expectancy.
In order to give you a head start on the things you should consider including in your trading plan, I am happy to share our classification with you, as follows:
Trading plan contents
What should this stock trading plan contain? There is really no fixed format. A good plan plays to a trader's strengths. The trading plan must be custom-built, because every trader has different time horizons, tolerance for risk, and emotional make-up, and the plan must reflect this. The trading system, as set out in your trading plan, should have been back-tested over a reasonable period to ensure that it has a positive expectancy.
In order to give you a head start on the things you should consider including in your trading plan, I am happy to share our classification with you, as follows:
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Strategy, which markets and instruments you will trade Trading Objectives- your profit target, and any other objectives · Position Sizing - how much you will buy · Daily Gameplan - what will you do today? · Timing Entries - when and why you will buy · Stop Loss - when will you know that a trade has failed? · Open Positions - how long you will hold a trade · Timing Exits - when and why you will sell · Grading Your Trades - give each trade a 'pass' or 'fail' · Emergency Back-up Plans · Record Keeping This is not meant to be an exhaustive list, but this plan is better than more than 50% of other traders out there, because they don't have one at all! Once written, the stock trading plan need not change very often, if at all. It should be revisited occasionally to ensure its continuing relevance (and to make sure you are still sticking to it!), but it is not a document that drives specific daily or weekly actions - those actions should be set out in your daily or weekly game-plan. Back to Execution |
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Trading the Plan: Build Wealth, Manage Money, and Control Risk
Robert Deel
This is the first book of its kind to address the topic of money management for individual traders and to present a comprehensive, detailed plan for implementation. It explains how to create a management program that addresses the emotional aspects of trading, presents an offensive and defensive portfolio allocation strategy, defines risk and shows the reader how to identify risk tolerance. It offers hands-on advice on selecting screen trades using fundamental and technical analysis and shows how to work with an "anatomy of trade."
Robert Deel
This is the first book of its kind to address the topic of money management for individual traders and to present a comprehensive, detailed plan for implementation. It explains how to create a management program that addresses the emotional aspects of trading, presents an offensive and defensive portfolio allocation strategy, defines risk and shows the reader how to identify risk tolerance. It offers hands-on advice on selecting screen trades using fundamental and technical analysis and shows how to work with an "anatomy of trade."