The answer is YES!

However, it will take you atleast 3 attempts to get it right!  A trading plan might not be on your mind If you're just starting off, but as you develop your expertise you must develop a plan so that you have very specific rules on how you trade and invest in the financial markets.

It took me 3 attempts to develop a trading plan.  If you want an idea of what goes into a plan there are many websites that provide templates you can follow. 

Here is what my trading plan looks like!  Everyone's will be different for obvious reasons, so keep that in mind. 

Table of contents:

1. My investment philosophy/Why I trade
2. My Objective as a trader/investor
3. What markets/sectors/instruments to trade
4. Buy Rules
5. Sell Rules
6. Market Direction (Market timing)
7. Equity Curve and Money Mgmt
8. Trading Strategies – A Collection (Keep adding what works, remove what doesn't work)
9. Psychology of Trading (What to tell myself pre-trade, post-trade, P&L gain, P&L loss)
10. Quotes from famous market gurus for inspiration

I review this material 2 or 3 times during the week just to remind myself to follow the rules I have outlined.

Hopefully, this post helps you in developing your own plan.  Remember, it will take you a few drafts to get it right.  And don't forget, this plan needs to be updated as markets change and as your strategies get outdated.

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Posted in: General - Intermediate - Trading Plan |

The analyst framework occupies 80% of the time that goes into making an investment decision. The execution of ideas (trader framework) requires only 20%.  So, It's very important to develop your analytical skills so that you are not swayed by daily market swings, tips from friends, advice from pundits, the news media etc.

Everyday, financial markets are influenced by political news, earnings, economic indicators (unemployment numbers, GDP growth etc), energy prices, inflation/deflation, FED statements, natural disasters etc etc etc…

For ex// In March, Japan was hit with a 9.0 magnitude earthquake and tsunami.  How you trade this news?

An as independent Trader/Analyst I found this to be very challenging indeed but eventually figured it out!  And I will share that with you in future posts. 

Infact, I'll talk about each of the components (listed below) in more detail so you have a better idea of how to interpret and analyze these items. 

The name of the game is: How do you formulate an investment thesis and turn it into a executable trading strategy?  I spend majority of the time thinking in this mode.  It requires 80% analysis and 20% trade execution.

 

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Posted in: Basic - General - Mental Models - Uncategorized |

what do I trade?  I mostly trade stocks/ETFs!

So, where’s the trading plan?  Personally, I believe you should start with figuring out your investment philosophy and your beliefs about the markets.  Ask yourself why want to trade?  Why do you think you can  do it?

Most start with the idea that they can make easy money.  It’s far from the truth.  This is a profession like any other and can’t be learned or mastered overnight.  That is why I believe most people give up or end up losing their capital.  The ones that do make it  overcome many obstacles and persevere through the tough times and make it in a big way.

The framework I posted above is how I approach the markets everyday!  It’s an intuitive process now but not when I first stared out.  I had a piece here and there figured out but I could  never put it all together. It was only after I realized that the most important component (‘psychology of trading’) was missing.   Indeed, this final piece of the puzzle is what enabled me to become a consistently profitable trader.

So, If you’re just beginning to delve into the markets, take your time and understand that this is a long process that requires you to make many mistakes, lose a bit of money and have sleepless nights!  And if after weeks/months of frustration you’re still there but barely surviving, congrats, you’re halfway there…good luck!

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Posted in: Basic - General |

Every stock analysis has two components.  One that is fundamental (looking at the company and it's fundamentals) and one that is technical (i.e. looking at the stock movement on chart)

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Posted in: Basic - General |