Do you want to be in the top 5% of investors?
Take heart from the words of Warren Buffett:
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound framework for making decisions and the ability to keep emotions from corroding that framework”.
A trading plan can provide you with the framework that you need to succeed in the stock market.
KEY COMPONENTS OF A TRADE PLAN
- Self Assessment
- Personal Goals
- Trade Style / Strategies
- Entry & Exit Rules
- Risk Tolerance
- Six Golden Rules of Money Management
- Emergency Plan
- Trade Journal
- Update your Trading Plan
SELF ASSESSMENT
What type of trader are you? Aggressive, moderate or conservative?
Are you comfortable holding stocks overnight?
How do you react to fluctuations in your portfolio?
Are you consistently reaching your goals?
Can you control your emotions?
Are you mentally prepared to trade?
Are you disciplined and decisive?
PERSONAL GOALS
Why are you trading?
What is your $ or % Goal (Daily, Monthly, or Yearly)?
Are your goals realistic?
How much time do you want to devote to trading?
TRADE STYLE
What type of trader are you? Active, Swing, Position
Do you trade more than one style?
What strategies do you trade?
What time intervals do you use for entry and exits?
ENTRY RULES
How do you time your entries?
Which time intervals do you need a fresh cross on the Clear Lines?
What other indicators do you use and did they give you a signal?
Will you scale into a position?
Did you check volume, support & resistance, and the ATR?
EXIT RULES
How do you time your exits? Are they based on money management, charts or both?
Which interval do you exit with?
Will you scale out of your position?
What type of order do you use to exit?
RISK TOLERANCE
What percent of your trading account are you willing to put into a single trade?
How much are you willing to lose in a single trade?
Are you willing to compromise the bigger interval trends?
Do you trade volatile stocks?
What ATR range’s do you consider?
Are you comfortable trading stocks that may gap?
Are you willing to trade during amateur hour?
6 GOLDEN RULES OF MONEY MANAGEMENT
1. Protect your gains and never enter into a position without setting a stop loss
-Swing and position traders should consider setting stops outside of the daily ATR
-Stop loss protects your trades while you are away from your computer.
2. Always trade with a risk reward ratio of 1 to 1 ½ or better
-Your profit goal should always exceed your stop loss
-The riskier the trade, the higher the reward
3. Never over leverage your account
-Consider putting no more than 10% of your account into a single position
-When the markets become more volatile, reduce or eliminate leverage
4. Accept your losses, move onto the next trade, and trust the software
-Every trader loses; great traders minimize their losses and maximizes profits
-Don’t let your emotions rule your trading
5. Make realistic goals that can be achieved within reason
-Initially set your goals lower to help build consistency and gain confidence
-Increase your goals as skill level improves
6. Always trade with money you can afford to lose
-If you lost your trading capital, would it change your lifestyle?
EMERGENCY PLAN
What if the power goes out?
Do you have your brokers phone number & account number handy?
Are you trading with at least a catastrophic stop loss?
Have you checked for news/earnings?
TRADE JOURNAL
Steps to develop a good trade journal
Journal your entry and exits
Learning from your winners
Learning from your losers
UPDATING THE PLAN
Your plan needs to evolve and change with the markets
You should always look to improve upon your trading plan
Adjust your plan as your skill level improves
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