How to Create a Trading Plan & Track Stock Purchases
In order to trade stock consistently you'll need both a trading plan and a method of tracking your stock purchases. In creating a trading plan you can set the boundaries for trading, allowing you to concentrate on market variables that are important to you, and avoiding stock purchases and sales that can unbalance your portfolio or increase your trading risk. Tracking your purchases efficiently will allow you to instantly evaluate your holdings, leading to more informed decision-making during trades. By doing both, you'll not only bring a more methodical approach to your trading, but you'll increase your chances of profiting from your trades as well.
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Instructions
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Creating a Trading Plan
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Evaluate your risk limits. Examine your financial status and determine how much you're willing to risk in your investments. Determine both a total investment amount, and a per trade risk. Balance the risks associated with short-term high risk investment vs. long-term holding positions.
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Set a maximum loss per trade amount along with the highest percentage of your total funds you wish to risk in a single transaction.
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Decide on the brokerage services you will be using. Full service brokerages offer personal advice geared toward your individual portfolio, but the service comes at a price, costing several times the price of a discount or online brokerage that only handles trades and provides research materials.
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Research purchases extensively. A large variety of information is available about an individual stock, from balance sheets and federally mandated corporate fiscal information to stock market analyst reports to financial industry publications. Research why a stock is priced at its current valuation before you make the trade.
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Research your tax situation both federally and on the state level to determine the impact of trading on your taxes. Adjust your trading plan to gain the maximum profit from trading while minimizing your tax obligations. Consult with a CPA for up-to-the-date information and advice.
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Remain consistent in following your trading plan and review your plan on a regular basis, looking for trends in performance to determine if you should alter your trading methods.
Tracking Your Stock Purchases
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Obtain portfolio management software. Portfolio management software can be as simple as a spreadsheet to input stock name and price data like Microsoft Excel, to a full online portfolio management software that tracks purchase and sell price including brokerage fees, and creates graphs from real-time and historical market data like that available from online sites like Bloomberg.com, CNNMoney.com or large online brokerages.
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Immediately input trade information to your management software once you've made a trade. The sooner you place the purchase information into your management software, the more accurate and up to date your tracked information will be.
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Print regular reports of your holdings containing as much information as possible. At a minimum you'll want the reports to reflect the stock name, number of shares, purchase price and date of purchase.
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Tips & Warnings
Your trading plan is a guide, not a set of unbreakable rules; modify it as financial circumstances change.
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Comments
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It is very true that modify trading plan is needed as financial circumstances change.
