Trading Plan - Trade for a living, invest for life   
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Write A Trading Plan For Stocks: The previous page is probably the mosttrading plan writer Anna difficult part of writing an online trading plan, as it involves issues and topics which are both complicated and broad.

They involve asking yourself many questions and being honest with yourself about your personality and view of risk. If you do not have anyone to discuss it with such as a partner, try to find a friend or colleague who will give you an impartial and balanced view of your ideas and plans. Once you have set down your overall objective and your trading strategy, you are now in a position to start writing the framework of rules and guidelines which will put the flesh on the bones. Just to save you going back a page I have copied the plan so far, and placed it below:

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.


Now Partner B feels they are making progress, whilst Partner A has wandered off to do something more interesting!! Partner B carries on alone, feeling that the plan gives a sense of support and direction to the business. The first issue is then, having decided on only trading blue chip stocks, can we define this as part of the plan. After some thought and further research B decides that the DOW 30 would be too restrictive, and that the S&P 500 will give a better choice, whilst still keeping to the plan in trading in good quality companies. Now the next decision is slightly more difficult as B has to decide how to select those stocks. B knows that all the data will have to be analysed in the evening and at the weekend so for charting will use an end of day data package. Following further reading and analysis B decides on the criteria for stock selection and includes this in the next section of the plan:

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend
2. Stocks must be trading above their 100 day SMA
3. Stocks must be performing better than their sector
4. Stocks can be from any sector
5. Only consider stocks with a 2% up move on the end of day data

Now, you can make the criteria as complicated or as simple as you like - in this case B is a new trader and only has a few criteria for stock selection. The next issue for Partner B to decide upon are any trading rules and understands . The most important part of trading is to preserve trading capital. So B decides that the first three rules relate to stop losses, which are simply to have one on each trade, and this is to be placed at the same time as the trade. Partner B has also heard about the markets being very volatile as the market makers move prices around during the first half hour and last half hour of trading. B therefore decides to have a rule about this as well.

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend
2. Stocks must be trading above their 100 day SMA
3. Stocks must be performing better than their sector
4. Stocks can be from any sector
5. Only consider stocks with a 2% up move on the end of day data

Trading Rules

I will only have four trading rules which will be as follows :

1. Every trade that I open will have a stop loss in place
2. I will always place the stop loss at the same time as  my trade
3. I will never move my stop loss down.
4. No trades to be made in the first or last 30 minutes of trading

Now Partner B has to decide on the rules for money management which can be a little complicated. In simple terms most professional traders will only risk 0.5% to 1% of their capital per trade. In effect this means that in simple terms they can get between 100 and 200 trades wrong before losing all their capital. B decides that given that the stocks may be expensive in value, and since the loss percentage will govern the trade size, then 0.5% may be more appropriate as a start. B also decides that the maximum amount of capital at risk at any one time should never be more than 20% of total capital. With these rules in place B feels more comfortable that the trading capital will be protected at all times and that the worst that can happen is to lose 20% of the starting capital when combined with the trading rules. Finally B decides that in general stop losses will be set at 10% below the market price as a maximum - they can be set tighter if required but this is the maximum allowable. Finally, as we have decided that as we are not day traders no positions will be open and closed within the same day. B also decides that all dividends will be reinvested in the business as trading capital. So now we can write the next part of the plan which dictates the trade sizes and capital management.

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend
2. Stocks must be trading above their 100 day SMA
3. Stocks must be performing better than their sector
4. Stocks can be from any sector
5. Only consider stocks with a 2% up move on the end of day data

Trading Rules

I will only have four trading rules which will be as follows :

1. Every trade that I open will have a stop loss in place
2. I will always place the stop loss at the same time as  my trade
3. I will never move my stop loss down.
4. No trades to be made in the first or last 30 minutes of trading

Money Management

My money management rules will be dictated by the following rules. To calculate the correct trade size I use the following formula : 50/market price x 0.10

1. The maximum loss per trade to be 0.5% of capital = 50 USD
2. The maximum number of open trades at one time to be 40
3. Trade size to be set by loss size and stop loss position
4. Stop loss to be set at a maximum of 10% below market price
5. No trades will be open and closed in the same day
6. Income from dividends to be reinvested in trading capital

Now we come to a part of the plan which is all about measuring our progress and naturally this is generally a financial target of some form. In any business we set ourselves financial targets against which we measure the performance of the business. Naturally in trading this can be very difficult so it is better to err on the side of caution and be pessimistic rather than wildly optimistic about our forecasts.

In addition, this can be every difficult when we are a new trader, as in this case. Partner B decides that as a cautious trader the forecast will be on the low side to reflect this view. Given the amount of capital being invested and the probable size of each trade, it would seem likely that to expect a 10% return over the year may be a little optimistic, but that 7.5% may be achievable. At this stage in the trading cycle  B has no idea how this will break down over a monthly basis, so decides to simply divide this into a monthly target. It is also difficult to measure as open positions may not be included. Partner B also decides to set a target for a number of trades on the month as this may give an indication of improving confidence.

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend
2. Stocks must be trading above their 100 day SMA
3. Stocks must be performing better than their sector
4. Stocks can be from any sector
5. Only consider stocks with a 2% up move on the end of day data

Trading Rules

I will only have four trading rules which will be as follows :

1. Every trade that I open will have a stop loss in place
2. I will always place the stop loss at the same time as  my trade
3. I will never move my stop loss down.
4. No trades to be made in the first or last 30 minutes of trading

Money Management

My money management rules will be dictated by the following rules. To calculate the correct trade size I use the following formula : 50/market price x 0.10

1. The maximum loss per trade to be 0.5% of capital = 50 USD
2. The maximum number of open trades at one time to be 40
3. Trade size to be set by loss size and stop loss position
4. Stop loss to be set at a maximum of 10% below market price
5. No trades will be open and closed in the same day
6. Income from dividends to be reinvested in trading capital

Trading Targets

I feel that a return of 7.5% on my trading capital should be achievable in the first year. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of 63 USD. This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of 63 USD per month in the first twelve months, or a total of 750 USD in the year.
2. A monthly target for the number of trades starting with 2 in month one, then doubling for the first 3 months to an average of 10-12 trades per month.

Finally, being a very disciplined person Partner B realises that part of running a business is also about keeping meticulous records. B has been told that keeping a daily trading diary is important so this is one of the rules. This can be written in the evening. One of the issues that has been concerning B has been how to place trades during the day whilst still at work. This is not a major issue as trades can be placed on line during lunch breaks, or alternatively orders left with the broker to open and close trades at certain prices. B draws up a list of records to be kept and includes them in the plan as a key part of the plan.

My Online Stock Trading Plan - Partner B

My Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend
2. Stocks must be trading above their 100 day SMA
3. Stocks must be performing better than their sector
4. Stocks can be from any sector
5. Only consider stocks with a 2% up move on the end of day data

Trading Rules

I will only have four trading rules which will be as follows :

1. Every trade that I open will have a stop loss in place
2. I will always place the stop loss at the same time as  my trade
3. I will never move my stop loss down.
4. No trades to be made in the first or last 30 minutes of trading

Money Management

My money management rules will be dictated by the following rules. To calculate the correct trade size I use the following formula : 50/market price x 0.10

1. The maximum loss per trade to be 0.5% of capital = 50 USD
2. The maximum number of open trades at one time to be 40
3. Trade size to be set by loss size and stop loss position
4. Stop loss to be set at a maximum of 10% below market price
5. No trades will be open and closed in the same day
6. Income from dividends to be reinvested in trading capital

Trading Targets

I feel that a return of 7.5% on my trading capital should be achievable in the first year after costs. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of 63 USD. This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of 63 USD per month in the first twelve months, or a total of 750 USD in the year after trading costs have been deducted.
2. A monthly target for the number of trades starting with 2 in month one, then doubling for the first 3 months to an average of 10-12 trades per month.

Trading Records

1. A trading diary to be kept every day
2. A manual record of each trade to be kept including the following:
           Stock
           Quantity bought or sold
           Price bought or sold
           Position of stop loss
           Time trade opened
           Time trade closed
           Profit or loss on the trade
           Cost of the trade
3. A daily balance of the overall account position, including cash in the account and open positions value
4. A weekly summary of the total capital at risk
5. A monthly P/L summary of closed positions

Partner B now has a completed an online stock trading plan which is shown above. This will be invaluable to a new trader. It will stop any impulse trades, ensure trades are the correct size, and above all ensure that trading capital is preserved so that in the worst case, B will only lose 2000 USD.

Whilst this is a very simple plan, I hope it shows the process required in order to wrote one - a little thought is all that is required, but you would be amazed how many traders don't have one. Remember the trading plan can be as simple as you like - even simpler than that shown above, but please have one.

 

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