Stock Trading Systems 10 Steps to Stock Trading Success
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Sys-tem (sis-tuh m):
What Are Stock Trading Systems?
a group of interrelated elements forming a collective entity; a set of interrelated ideas, principles, rules, procedure, laws, etc; the state or condition of harmonious, orderly interaction.
In other words, when it comes to trading systems it means, "here's what I'm gonna do and how I'm going to do it." This may seem overly simple, but big-picture clarity is a great thing, and defining your stock trading system is the first step toward trading success.
This list will help you get started with your system, or it may point to places for improvement on your current system. Most of the steps listed below can be clicked on for further information on that topic. Enjoy the journey!
1. Define the stock market strategies you'll use.
For instance, how long will you hold a stock? How much time each day, week or month do you want to spend trading? What criteria will you use to determine when to get in and out of a stock? What’s your favorite technical indicator? Are you going to go long and short or just long? What's a good strategy? Know that finding right strategy for you may take a bit of time, but that’s ok because good
money management parameters
will keep you in business.
2. Find the best stocks to buy.
– Before you begin trading you need a way to find the best stocks that fit your fundamental or technical criteria.
3. Determine the stock market trend.
– Before making any trades, if you know the direction of the market and trade with it in your favor, it will give your trades trend support. What’s your method for determining market direction? This topic will give you some good ways to get a sense of market direction.
4. How much to invest/trade?
– How much of your capital will you trade in any one stock? What's the maximum number of stocks you'll have in your portfolio? Clarify and limit number of trades and trade amounts.
5. Write out your plan.
– Think of your online stock trading plan as your own personal small business guide by identifying the specifics of how you'll operate your stock trading business. For example, when and how you will buy or sell stock, how much capital to use, money/risk management parameters, goals/objectives and more.
6. Holding Stocks.
- Right after you purchase a stock it goes into what I call an “incubation period.” It's similar to planting a seed and waiting for it to grow. If it doesn’t grow, you have to check the conditions and eventually plant a new seed. During the incubation period, the stock should have a
stop loss order
on it to protect your portfolio from unsustainable losses. This is vital since you have the most risk at the beginning of a hold. Another question to ask yourself is how long to hold a stock if it’s not doing anything? Finally, after you’ve let a stock incubate, you’re going to wind up doing one of the following two things (#7 or #8 below):
7. Know when to get out of a position.
– Stock trading systems have to have a method for when to exit a position. Know how to protect your investment or when to take a gain.
8. Find good stocks to buy - Again.
- Know when to add to a stock position. Before a stock begins to earn a profit, pick a point where you will leverage in with more capital if all signs are positive.
9. Track and document your trades.
– Successful investing includes continuous improvement on your trading. One the best ways to improve stock trading is to grade your trades and track your progress.
10. Continuing education.
– This is a fun part - continuing to seek out information that will improve your stock trading system. Good, free sources are some of the best!
Having a stock trading system is the foundation of real success in stock market trading and the process of developing it is worth every minute it takes. You can do this!
Ready to go on to the first step of a stock trading system?
Click here for Step 1, Identifying Your Stock Trading Strategies.
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