Trading Plan

There are those among us that believe that they must know every piece of all the parts of a trading plan together, before they enter the market.  This is simply not true.  The best time to enter the market is when you’re ready and not a moment later.

It certainly helps to have a working knowledge of a working trading plan but it is not necessary to have the whole thing down pat (no pun intended).   We call this a trading system.

When I started I didn’t have the whole picture.  It cost me a lot of money over the years to learn just what parts of a trading system I should have concentrated on.  Now I can tell you.

I can tell you that any trading system is only a derivative of a trading plan.  So, albeit, a system doesn’t need a trading plan, your plan needs a trading system.  Most trading systems concern themselves only with 2 of 5 pillars of trading success.  They are strategy and technique.  They tend to only touch upon the other three; money management, application and self-knowledge.

But what do you need to know before jumping into the stock market?  All of them.  Not everything about all of them but you should have a working relationship with all of them.

These are five things you should concentrate on if you want to get into the market immediately.

Money Management

“Protect your principle first”.

When starting out in the stock market you want to make sure you have staying power.  The best way to do this is to realize that there will always be opportunity in the market as long as you have trading capital.  No money, no opportunity.    It’s that simple.

Strategy

“Know your risks.”

I believe that anyone could start out trading, as opposed to investing, with only $2000.  Some could start out with as little as $500 and become a success while some couldn’t make it with all the money in the world.  Risk only what you can.  In reality all money placed in the market has risks.  These are not the same risks associated with risks of money still under the proverbial mattress.  Just different risks.  We get paid to take those risks.  Just the same, it is money at risk.  This is true whether you trade, invest, or save in the bank.  One more salient thought on risk.  Risk changes as the market moves.   You should always know your risks.

Technique

“Know your trading techniques”.

It’s not enough to know money management and strategy.  You must know just how and when you are going to apply your strategy.  I don’t subscribe to the adage, “Knowledge is power”.  I say, “Power is action”.  The proper use of knowledge and power is embodied in the technique applied in their use.  So the only way to properly use your strategies is to apply a suitable technique.  The key here is “apply” and “suitable technique”.  Of course, you should  “Know your trading techniques”.

Application

“Know your trading platform”.

You should have a working knowledge of your trading platform.  This is where you will spend most of efforts to execute a trade.  Even if it’s for investing purposes you should know how to place different types of orders.  Limit orders or stop loss orders are very common and necessary type of order to place.  These aren’t your standard buy and sell orders and you must know how to do them.  You also need to be very familiar with being able to read a stock chart.  I have one “Rule of Thumb” here.  “Defaults are for dummies”!   Know your trading platform.

Self-knowledge

“Know yourself”.

This is the single most important aspect of successful trading.  It doesn’t help to have the other four pillars if you don’t have this fifth one.  Recently a friend who, when I told him about the “Trading To A Million” trading portfolio, said that was exciting.  Who wouldn’t be excited to run a trading portfolio from $2k to over $86k in just over 16 months?  Yes.  Yes it is.  But trading excitedly costs profit, principle, and time.

Trading effectively is really pretty boring.  If it isn’t, then we are prone to making costly mistakes.  We don’t want to trade that way.  If, because of your own optimism or pessimism, you change strategies in the middle of a trade you will cost yourself more profits than you have principle and should never be trading in the first place.  This is why trading systems are so marketable.  People really want something or somebody else to take responsibility for removing their own emotions from their trading.  If this is you, take it under advisement, it won’t work.  You should “know yourself”.

The End or The Beginning

Most of us will never have a PhD in stock trading nor is it necessary.  Even if you intend to get one, you should be in the market long before you ever reach that point.

You don’t need to know everything about money management to practice good money management.  You don’t need to know every strategy out there for trading stock to apply a good stock trading strategy.  You certainly will never know every stock trading technique before you can effective apply good ones.  And every trading platform I’ve ever used has evolved as I used them.  And as for self-knowledge, if you think you know, you don’t.

All of these things are necessary for trading success.  Knowing all of any of these aren’t.   That is why they are pillars and not the entire building.  You should spend maybe an hour on each and then, when you think you have these five pillars in place it is time to begin trading.  And like any good trading plan, we create a plan which we plan to change.  Then we test the plan, and only, when we have completed this step, do we change the plan.  Knowing and applying these ideas are what leads us to investment success.

save

save