If you have decided to dabble in or throw yourself fully into online share trading then you need to create a plan. Share trading can be quite daunting without a certain level of knowledge and experience, so having a share-trading plan can set you on the right path from the beginning. Find out what a share-trading plan is, why it’s so important and how you can go about creating one for yourself.
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What is a Share-Trading Plan?
Similar to a business plan for a company, a share-trading plan is intended to govern your trading, and is made up of a range of actions and rules that can be used to formulate your specific share-trading strategies. It is designed to tell you how to operate: how much stock to buy, when to buy, when to sell, and at what price you buy and sell. A share-trading plan requires short-term and long-term goals. Three-month, six-month, 12-month, two-year, five-year, 10-year and even 20-year goals are important to designate lay out, even though these may change over time. How, when and why you plan to make various stock trades, the volume of stocks, and the amount of money to get you to your goals should all be clearly included in your share-trading plan.
Get Some Basic Knowledge
Just like launching into a new business, entering the stock market requires some basic knowledge before jumping in feet first. If you combine your share-trading plan with reading some trading books, watching the market, talking to brokers and learning about particular stocks of interest, you set yourself on a solid foundation, ready to launch into your stocks and shares future.
Be sure to assess your skill level. Are you confident enough with your own knowledge in order to write your share-trading plan? Have you written a share-trading plan that is practical and achievable, one you feel you can stick to?
Mental preparation is the key to a good share-trading plan. Most experienced and successful traders understand the mental and emotional issues of trading. Never trade when you are angry, hung over, distracted or under stress. Successful traders trade with a level head. If you choose to enter the market without a clear mindset, you are far less likely to stick to your share-trading plan and risk losing more than you can afford to.
The Essentials of a Trading Plan
With any great share-trading plan you need to know how much of your portfolio you can risk at any one time. In general, most traders are happy to risk between one and five per cent on any given day. Whatever risk level you set for yourself, be sure to stick with it. This means that if you lose your set risk amount and then make the immediate decision to get out for the day and stay out, you must then reassess what happened and prepare for the next day’s trading.
Analysing your trading is a key factor of sticking to and adapting any share-trading plan. Some days you’ll come out on top, while other days you’ll go home with your head hung low. No matter how the day went, analysing what happened is of vital importance. Keep clear notes of your analysis of each day. These can be beneficial in the future to use as a reference.
As well as record keeping of your trading analysis, you want to keep records of where you made money and where you lost it. Record your reasons for gains or losses. This way you’re less likely to make the same mistake in the future.
Success for Your Share-Trading Plan
In order for your share-trading plan to be successful it must be realistic, goal-oriented, regularly analysed and adhered to. During the day’s trading, your share-trading plan does not change. Only once trading has ended for the day and you have analysed your position and results can the plan be reviewed or tweaked.