Stock Trading Plan

Before you start trading in the markets you want to create your own stock trading plan. This allows you to treat trading like a business which in return it will pay you like a business.

So how do you treat trading like a business? Well first of all you need a mission statement. This should be a short 1 to 2 sentence description of what you want to do and what your approach and risk tolerance is.

All business have a mission statement and your business should be no different. Your mission statement should not be “to earn a profit” although that is probably the biggest reason why you are trading in the stock market to begin with.

The only problem in creating a mission statement like, “to make money” is that you will have ups and downs in your business cycle and if your goal is to make money only and you have a down cycle it is harder to get back on that roller coaster and learn from your mistakes.

Instead try to use a mission statement like, “I will learn how the stock market operates in the short term and try to create winning trading systems. That will work much better.

The second thing you should have is a set of personal rules on how you plan to get there. This isn’t something complex like, finding stocks bouncing off their moving average with rising volume and …

These aren’t your exact trading rules Instead these rules should be more general and never change. For example if you are a value investor one of your goals may be find stocks that are undervalued. Your trading rules for how you will determine if a stock is undervalued or not may change over time, but your personal rules would still be find undervalued stocks.

Here is an example of what I have made for my personal stock trading plan.

Mission Statement

I will significantly beat the market every year by trading with the trend and cutting my losses short.

Personal Rules

1. Trade only when the market trends

2. Trade with the trend of the stock

3. Cut My loss Short

4. Never Let a trade become an investment

5. Never trade tips without doing my own analysis

6. Let Winners ride

7. Learn from past mistakes and adjust

8. Never give up when things look bad, just keep learning

9. Review open positions every night

10. Always make sure fundamentals agree with Technicals

Your Trading Plan

Now that you know how to write your personal stock trading plan it is time for you to do it. Write down your Mission statement and your personal rules for how you plan to do it.