Getting Started In Share Trading And Investing: How To Invest Part Four

Contents | Part 1 | Part 2 | Part 3 | Part 4

Forming A Trading and Investment Plan

So you’ve learnt what the stock market is and the two different ways to analyze a share. Now what? Well before you trade and invest in the stock market, you absolutely must have a trading or investment plan. Amazingly more than 80% of investors do not have a written trading plan before they trade or invest. In fact, as Jesse Livermore famously said, most investors will risk “half their fortune in the stock market with less reflection that they devote to the selection of a medium-priced automobile.”

But what do we put in our trading plan and how do we form one? Very simple. Our first point of call is to determine our rules for buying and selling. This involves finding an entry and exit rule that you can practice with and test over at least five years of data (and preferably ten or more). You must then have a method for determining if your plan is currently successful, which our flagship course will show you how to do.

Your trading plan will also show you how much to risk in the stock market at any one time and on any one share.

It Must Be Right For You – Finding The Right Timeframe

When you form your trading and investment rules you must take into consideration the time-frame you are using. It is no good having rules for day-trading when you are still working full time. Likewise, it is no good having long term investment rules if you would prefer to be a part of the action every day.

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You might prefer to look at stocks directly, or you might prefer to trust an automatic system you have coded yourself. Once you know your trading and investment personality, you can choose rules that will suit you.

Starting Small

Once you have your trading and investment rules and have tested them over five years of data or more, it will come time to put them to work in the real world. Most people will tell you to paper trade once you have tested your trading and investment rules. Paper trading means to write down your trades instead of putting any money into them at first. Instead of this, I prefer the method of risking very small amounts of money in your trades. Amounts like $20.00, $50.00 or $100.00 per trade. This will give you an idea of the psychology of trading as well, as there is now real money at risk.

Going For Gold

Once you have your rules, have tested them, and traded them with ridiculously small amounts of money and found them to be profitable, then you can increase your risk and risk the amount that is right for you in the stock market. During your trading you will have losing periods and drawdowns, but it is important to remember to risk the right amount and stick to your proven trading rules.

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Contents | Part 1 | Part 2 | Part 3 | Part 4

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