What is a Stock Trading Plan?
Key to Success A stock trading plan
is a strict set of rules and actions which formulate your stock trading
strategy. A stock trading plan defines when to buy and sell stocks and at what
prices. Every trade you make should be governed by your trading plan.
A stock trading plan is very similar
to a company Business Plan. A Business Plan is a device for the owner which
sets out how the company intends to operate the business. A business plan is
also a road map to tell investors and others how you expect to get there. A
business plan covers all aspects of the company, from overall strategy and
marketing to finances and the company’s goals. In the same fashion, a trading
plan lays out how the trader will make trades – the time, price, volume, and
news are all essential components of the trade. While your trading plan may not
necessarily be for others, it is still your own road map to tell yourself, and
reaffirm to yourself, how you expect to get there. Include goals in your business
plan: 3 month, 6 month, 1 year, 2 year, 5 year, 10 year, and even 20+ year goals you would like to reach through your trades
and investments.
Trading Criteria to Consider
There are many things you need to
consider and think about when creating your trading plan. Here are a short few
your trading plan should cover. Any additional criteria you can think of should
be included.
When to enter a trade (buy a stock)? – timing.
Price when buying a stock.
Current news about the stock.
Liquidity of the stock - Liquidity is the ability to buy and
sell stocks at the volume you want, when you want, at
the price you would like.
How long to hold the stock?
When to sell if the stock price goes
up?
When to sell if the stock price goes
down?
What to do if the price does not
move?
Hold the stock longer? Sell the stock?
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