Having a Trading Plan

Having a trading plan is the only way anyone can make money in the stock market. You simply cannot succeed unless you have one. Too many people will go buy a stock with no plan on when they will get out of it, or what they will do in different situations. They have false hope that if you buy a stock it is going to go up and that is going to make you money.

Sometimes it does that but it is not always going to do what you expect. It can also go down and you lose money. You must be prepared for all situations if you want to be successful.

There are 3 main questions that all traders should answer before they get into any position.

1. Why am I getting in? Are you getting into it because you truly believe that the company is a good buy, or are you getting in because you heard some guy with a suit on the 10 o’clock news say he likes the stock? You don’t know who he is or what his plan is for the trade is.

2. What will I do if the stock goes my way? Yes this is important, If the stock does go up what do you do? Do you have a target where you would get out at, or are you going to follow the stock up with stop orders. There are too many traders who buy a stock watch it go from $50 to $80 then watch it fall back down to $30. Knowing when to get out is critical to a stock market trader.

3. What will I do if the stock goes against me? No ever expects a trade to go against them. But it does happen, no matter how good you are. Perhaps the most important part of trading is knowing when to cut your losses short and letting your winners ride. You might want to have a stop level that you get out at. This would be the most you are willing to risk on 1 trade.