A Simple Trading Plan can really help you improve the consistency of your trading results. And when it comes to stock trading, a higher percentage of wins makes all the difference. So what is a simple trading plan, and how do you make one?
A simple trading plan is just a methodology you use to guide your decisions when you are buying and selling stock. The benefit is, by planning your moves ahead of time you are less likely to get overcome by emotion in the moment. You’ll be able to act more quickly and execute your trades more effectively. Sounds good, right?
A simple trading plan is a very powerful tool that helps automate the decision-making across all aspects of your trading. If you want to make more money as a stock trader, a comprehensive trading plan is a must-have. It’s a great way to get serious on your methodology for stock picking and selling.
So let’s get started. Here’s what you should include in your simple trading plan…
How To Make a Simple Trading Plan (Step-By-Step):
Answer all of the questions below and you’ll have the foundation for your simple trading plan.
Research: How do you go about finding your best stock ideas? Literally, what tools do you use? What screens do you run? Is this a daily thing or something you do every other Sunday morning? Good stock research is the meat and potatoes of your simple trading system. Understand how you do it best, then commit to that by writing it down.
Analysis: Now that you have a reliable stream of stock ideas to fuel your simple trading system, how do you sort and sift them to find the most actionable intelligence? You might use momentum stock screens. Or you might be looking at balance sheets and income statements. Any method can work: How you do your analysis is one of the most proprietary parts of your simple trading system.
Execution: The final step in making a simple trading system is to create an execution plan for each of the stock ideas that get a green light from your analysis. Once again, you’ll want this part of your trading plan to be congruent with the research and analysis. If you’re a buy-and-hold investor looking for long term value, your execution plan might be as simple as buying all your favorite stocks once a month. If you’re a day-trader though, you’ll probably have a much more detailed execution methodology.
Here’s how I do it:
Typically, as a position/swing-trader I like to split up my entries and exits into 3 or 4 tranches. That way I’m not too worried about timing the exact top or bottom of any move. So I pull up the charts of my favorite stocks (per the research and analysis phase of my simple trading plan). Then I look for overbought and oversold levels using Bollinger bands and try to look for matches between those and nearby support and resistance levels.
Does that make sense to you? It’s a pretty rough description but I’m sure to write it out for each of the stocks I’m looking at.
But What Does a Stock Trading Plan Actually Look Like?
The truth is, it doesn’t matter what your trading plan looks like. The most important thing is that you just start writing down your rules. Get granular on what you look for in your stock picks. Define your entry and exit signals ahead of time. Have a plan for locking in profits as you go.
My trading plan exists in a word document, it exists in my head, and it exists in my agenda where I’m always making notes and writing down updates. As long as your simple trading plan looks like something (e.g. you make one) then you’re on the right track. But now I want to hear from you…
What do you look for in a simple trading plan? Did I miss anything?
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