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Stock Trading Plans

By Charles Hopkins Published 03/13/2006 | Finance

A trade in stocks requires complete planning much ahead of getting into executions.

Planning consists of making oneself prepared for all contingent actions that may be necessary for rational decision-making regarding investments in stocks. It means a systematic action strategy with a long view.

To take a planned approach, one needs to understand in advance when and how much to buy, and when to quit. Once a trade is executed the price and options can no longer be controlled by the normal private investor.

The most important questions addressed to by a planned trading system are

i.        How much money to put in


ii.       How many positions to trade at a time

Right answers can be found through money management, which is the most important component of a trading system. The quantum allotments and timing of entry and exit need to be decided through a sophisticated system of reasoned and researched approach. A considerable fraction of success comes from this planning based on academic studies.

A positive risk attitude is an essential component in stock trading plans. Persons shy of taking any sort of risk is an unlikely candidate for stock trading success. Consistent conjectures based on confidence, and the rational application of research will see you through most risks.

Stock trading plans involves adopting a positive outlook towards the future while keeping track of what has happened in the past, and designing your strategy to handle all options in situations that may give rise to high profits.

For this, you need to devote some time to analyzing and researching the system and forming a strategy that will be strictly followed. Include in your plans a fixed time each week when you can review what you have done and project what you still need to do.

The wise investor should not be swayed by the fluctuations of the market, but rather keep a cool eye on events. You should have a mid- to long-term approach and a trend-following trading style without any falling prey to fear and greed. You must stick to the system you worked out with absolute discipline.

Your trades must be fully planned with pragmatic acceptance of good times and bad times and the readiness for all possibilities in advance. This means that a detailed evaluation of every potential opportunity needs to be studied and compared before any action is taken.

Irrespective of your investing strategy (Value, Growth, Buffet, etc.), coherent and repeated evaluations of each stock are required. There will be specific metrics that you use for the purpose such as, ratios of price to earnings, price to sales, debt level, sales growth, etc, can vary for each investor, but for one investor, the same metrics should be used on all stocks being considered. And lessons from these exercises must be utilized fully in the stock trading plan.

There are quite a few highly informative websites these days that provide a very good resource for getting news, quotes, analyst forecasts, and ratings for stocks. Take advantage of these, because a stock trading plan must include reading the news about investments in the market.