Why Investing in Stock Takes Planning

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Why Investing in Stock Takes Planning. Long and short-term investments take on many forms, and investing in the stock market has remained one of the most popular forms. Although the stock market has fallen under some scrutiny since the last economic plunge in the early 2000’s, it still remains the largest and most well-known trading platform since the inception of shareholder models as early as the 12th century.

For this very reason, everyone wants a “piece of the pie” – conjuring up hopeful investors from every corner of the globe. However, an art that was typically practiced only by trained traders, brokers, and financial gurus has become so commonplace that anyone with access to the internet and $20 can start investing.

And, herein lies the problem. Although the savvy day-trader may seem impulsive (and quite honestly may be at times), there is almost always an underlying strategy at play. Developing your own techniques for successful trading starts with proper planning, and here’s how:

1. Identify Your StyleWhy investing in stock takes planning before you begin trading, you’ll want to decide which “style” suits you best. Traders are investors- all with unique styles based on set goals. Build your style around your goals.
2. Develop Trading RulesAny good investor knows that risk control means setting limits. And, for the trader, that means developing a solid set of rules that never get broken- even when an opportunity looks too good to pass up. As you gain experience, your judgement will improve, allowing for some flexibility in less critical areas of your plan.
3. Find Your Best StocksDetermine which types of stocks you will trade. It’s often best to choose a market you understand easily so you can better predict price movement, identify trends, and pick the right tools to capture profits in every time-frame.
4. Implement a Method to Select the Number of Shares to TradeA good rule of thumb is to never risk more than 2% in any single trade or more than 6% of your overall trade capital at one time. As an inexperienced trader, the importance of “Position Sizing” is often unknowingly overlooked, resulting in excessive over-trading and ultimately- failure.
5. Determine Your Exit StrategyJust as any business or investment plan needs an exit strategy, so too does the trader. Some traders choose to exit when the stock hits a certain price, approaches a resistance level, or breaks through a support level while others use “trailing” stops as their approach. Identify your exit strategy before you do any trading. It is one of the most critical components of any trading plan.

Trading is an investment opportunity, but it can be a lifestyle- and a lucrative one at that. If you’re serious about planning to your stock trade career, you’ll want to learn everything there is to know about the stock market.

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by Chris Bouchard