Short-term and long-term investments take many forms, and investing in the stock market has remained one of the most popular forms. Although the stock market has come under some scrutiny since the last economic crash in the early 2000s, it remains the largest and best-known trading platform since the inception of shareholder models in the 12th century.
That’s why everyone wants a “piece of the cake” – evoking hopeful investors from all corners of the world. However, an art normally only practiced by trained traders, brokers and financial gurus has become so commonplace that anyone with internet access and $20 can start investing.
And herein lies the problem. Although the smart trader may seem impulsive (and honestly, sometimes they can be), there is almost always an underlying strategy at play. Developing your own techniques for successful trading starts with proper planning, and here’s how to do it:
- identify your style
Before you start trading, you’ll want to decide which “style” suits you best. Traders are investors, all with unique styles based on set goals. Build your style around your goals. - Develop business rules
Any good investor knows that risk control means setting limits. And, for the trader, that means developing a solid set of rules that are never broken, even when an opportunity seems too good to pass up. As he gains experience, he’ll improve his judgment, allowing him some flexibility in less critical areas of his plan. - Find your best stocks
Determine what types of stocks you will trade. It is often best to choose a market that you easily understand so that you can better predict price movement, identify trends, and choose the right tools to capture profits on each time frame. - Implement a method to select the number of shares to trade
A good rule of thumb is to never risk more than 2% on a single trade or more than 6% of your total trading capital at one time. As an inexperienced trader, the importance of “Position Sizing” is often unknowingly overlooked, resulting in over-trading and ultimately failure. - Determine your exit strategy
Just as any business or investment plan needs an exit strategy, so does the trader. Some traders opt to exit when the stock reaches a certain price, approaches a resistance level, or breaks out of a support level, while others use “carried” stops as their approach. Identify your exit strategy before making any trades. It is one of the most critical components of any business plan.
Trading is an investment opportunity, but it can be a lifestyle, and a lucrative one at that. If you’re serious about planning your stock trading career, you’ll want to learn everything there is to know about the stock market.