Hello fellow traders – in this multi-part series we will cover some key tips for your active trading. Some of these will seem basic, some will not, but all are equally important and deserve your attention to achieve consistent success.
Let’s kick it off with our first tip – Have A Trading Plan – and not just any plan, a rock solid trading plan!
The first question you may be asking is – why do I need a trading plan? I already know how to read stock charts, recognize candlestick patterns and enter and exit positions, what else do I need?
Well, let me put it this way. If you owned any other business, let’s say a chipotle for instance, would you do business without a complete business plan? How successful would that be over the long-term?
Just knowing how to read charts and patterns and doing nothing more is the equivalent of saying – I know how to buy ingredients, make and sell burritos. That is not a business model for long-term success.
As the business owner, you need to know inventory, labor costs, cash flow, costs compared to available capital. Trading is no different; costs are your trading tickets, your charting service, etc. Capital is your trading account balance and inventory is the shares you hold of various stocks and trades that you must manage.
Do you see the similarities?
We must have a clear plan on how much capital we should risk on a given trade relative to our account balance, among other things.
Additionally, what minimum profit vs. loss ratio must we have in order for a potential trade to be worth entering. Or going back to our example, what minimum sales price do we need in order to make selling a burrito worth it. Basically, profit margin – That is what your profit to loss ratio is.
Ok so, what factors makes up a rock solid trading plan?
Through are trading experiences over the years we have found five points that make up a rock solid trading plan. Each point has a few components to it and questions that must be answered. This is covered in detail in our course – Active Trading Blueprint – where we work with you to build a trading plan step by step.
The process is rather straight forward, but requires the interaction that a simple article cannot provide. The goal of this post is to introduce you to the five points and get your thought process going on them.
Trading plan points are as follows: Strategy, Criteria, Rules, Risk and Goals.
When we clearly define the components of these five points, we have a solid plan for our trading business and understand what it takes to make money, but more importantly how not to lose money. This is a key to trading that most don’t master, thus putting them out of business.
You can read some more about trading plans in our upcoming article “Building a Trading Plan” or work with us to build out your trading plan by taking the Active Trading Blueprint – a complete guide for successful trading. Use this link for more info on the program: http://tradingeducationblogs.com/active-trading-blueprint-course/
Always remember, “Victory Loves Preparation.”