Friday, April 22, 2011

Fail to plan and you plan to fail

Dear fellow traders,

Going into anything blind is a formula build for failure. This is especially so when you go into the stock market. There's an old saying that goes; "Fail to plan and you plan to fail." Simple words to live by. But a lot of people have ignored them and have consequently lost thousands of dollars to the vagaries of the market.

If you don't want to end up losing your shirt on the market, you better start your entry into it by formulating a trading plan.

So, how do we go about doing it then? Well, the foundations of a trading plan is this :

- what are your objective?
- How much money do you intend to earn?

It would be best and easiest to start your plan by setting a definite number for you to aim for every month or maybe weekly. This gives you a specific goal to meet and helps you focus on what you want.

Next, you should choose the particulars of your entry into the market. What markets are you interested in going into? What commodities or products? This choice should be based on your knowledge and interests. It's pretty self-defeating to trade in stocks you're in for purely money. That's because lack of interest usually translates into non-interest in current events in that particular product's field. Not knowing what's happening in a market that you're trading in would be disastrous. So focus on markets that you have knowledge of and are willing to learn about.

After knowing what you'll be trading in, it's time to roll up your sleeves and hit the books. Choosing particular stocks in a one field is important and this is done by reviewing the performance of the stocks in a particular market. This defines what stocks you will be getting and what your possible strategies are. Are you going to go for the slow and steady route? Stocks that have consistent performance through the years. Want some quick money? New stocks moving upwards in recent times can be a boon for you.

As I mentioned earlier, choosing stocks goes hand-in-hand with formulating a strategy. These strategies would specify at what price you would start buying a particular piece of stock and how much money to spend on it. They also indicate at what prices would you start selling the shares that you have accumulated some profits or to cut loss when your stock no longer performs.

Your trading plan should also include some specifics : just exactly what sort of trader would you be? A day trader who is focused on the daily market schedule or a swing trader who may hold on to a trade for day or months?

The plan should also specify how exactly are you going to trade : calling up your broker once in a while or having your own online trading account.

Of course, there's the danger of over-planning. Don't be seduced by all that fancy software being advertised. All you need for stock trading is an accurate way to get stock information and that can be as easy as going to Yahoo! Finance or visiting Or you can invest in the star trading system.

Finally, your plan should have a margin of error or at least a level of adaptability. A whole lot of things happen on the stock market and you can't exactly be expected to take into account everything that might happen in the market. Having your plan be able to handle something you didn't think about can help make sure you don't accidentally lose money. This is where money management will save you. As long as you allocate a fixed percentage (eg. 5 to 10%) of your capitol to every trade, you will not be burned if one or two of your trades didn't work out as expected. You will still have the capital to fight another day.

A good trading plan can mean the difference between losing your savings or having a nice little retirement, so keep this in your mind as you formulate your own.

Good trading,

Tony Chai


Options Trading Tips said...

Trading plan crucial to succeed in trading business.

I agree that never trade without having a plan.

Tips: plan when to sell.

option trading said...

Totally agree with you. Once you have a plan it’s time to follow the plan. You need discipline for that

Sean said...

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Anonymous said...

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