Writing a Stocks Plan
In stocks there is no single method or formula that is used for trading the stocks market successfully. The stocks market requires traders to learn and acquire the skill required to trade the stocks market successfully. Stocks traders need to learn how to analyze the stocks market movements. Stocks traders then need to come up with a plan of how to come up with a way of combining this knowledge and the strategies they have learned so as to formulate their overall trading method.
By coming up with an effective trading plan your success will improve significantly. A stocks plan will help you to effectively analyze the stocks market and know when the best time to open a trade is and when it is best to close the trade.
Before starting to trade the stocks you must be prepared with a stocks plan. Just like in business where all successful businesses start with a business plan also successful stocks traders must begin with a stocks plan.
Sections of a Stocks Plan
Stocks Trading Instrument
The first section of a stocks plan will specify the stocks instruments that a trader will be trading. Stocks traders should specify the stocks instruments that are best suited for their trading method.
Before deciding the most suitable stocks instrument to trade a trader will have taken time to test their stocks strategy on various stocks instruments on a practice after which they will choose the stocks instrument that produces most profitable results. The trader will then list this stocks instrument on the trading plan as the stocks instrument that they trade.
Chart Time-frame
The trader will also have to specify the chart timeframe they will be using to trade stocks with. For example a trader may find that the best chart timeframe for their stocks system is the 15 minute chart timeframe and therefore they will specify their chart timeframe as the 15 minutes chart time frame.
The chart timeframe that a trader chooses will depend on the type of trader they are. For day traders who have a lot of time to watch the charts they can choose the 5 minutes or 15 minutes chart timeframe and trade with these charts. For swing traders who don't have a lot of time to watch the stocks market they can trade with the 1 hour stocks chart timeframe so that they can be able to follow the medium term trends that will last for a one or two days.
Stocks Trading scalpers on the other hand can trade with the 1 minute chart timeframe and trade the short term market moves. These traders will make many trades during the day and just like day traders they will also have a lot of time during the day to watch stocks market moves.
Stocks Trading System
This section will specify the stocks system that the trader will be using to trade the stock market. This section will list the rules that a trader will follow when opening a buy or sell stocks trade. It will also list the rule that a trader will follow when closing their trades - for example it will note the take profit levels as well as stop loss levels that a trader will set after they have opened a trade.
The trader will write-down if they will be using an technical indicator based stocks system to generate stocks signals or the trader will write if they will be using support & resistance levels to open and close trades or any other technique that the trader will be using for trading. For example a trader may specify that they will be using automated stocks systems and they will write the parameters of the automated stocks robots on this section.
Before writing the stocks system that a trader will be using, the trader will have back tested this stocks system on a practice account until the time that the stocks system is producing profitable trades on a consistent basis and after coming up with a profitable stocks system the trader will then write down the stocks system on this section of their trading plan.
Mindset
This section will specify the mindset that you'll be following when trading in order to ensure that you become successful when trading.
Discipline – This will list that you will be disciplined enough to follow the rules of your stocks system and trading plan. Discipline will mean that you'll be patient enough to wait for a trading signal from your stocks system before opening a trade. This section will specify that you will only trade the signals that are generated by your stocks system and you will not second guess your stocks system and open trades not indicated by your stocks system.
Trade Without Emotions - when it comes to trading the stocks market you should not let the emotions of fear and greed control you when you’re trading. You should always trade based on the rule of your trading plan. Avoid becoming greedy & wanting more profit from the same trade instead of closing the trade at your take profit level.
Stock Money Management
A trader must specify their stocks money management guidelines that they will use when trading. For example a trader can specify that they will use a high risk: reward ratio which means they will place their take profit level at two times what they set their stop loss level. This will make their stocks strategy more profitable in the long run because they stand to make more money from their winning trades and lose less money from their losing trades.
