Einstein was criticized for not wearing socks or cutting his hair. He did not speak until he was four, and did not read until he was seven. One observer noted, he could be mentally retarded or possibly autistic.
My thoughts on goals, style and strategy in 38+ years of trading.
Before investing or trading, it is important to develop a strategy or game plan that is consistent with your goals and style. The ultimate goal is to make money (win), but there are many different methods to go about it.
As with many aspects of trading, many sports offer a good analogy. A football team with goals geared towards ball control and low-scoring games might adapt a conservative style that focuses on the run. Teams that want to score often and score quickly are more likely to pursue an aggressive style geared towards passing. Teams are usually aware of their goal and style before they develop a game plan. Investors and traders can also benefit by keeping in mind their goals and style when developing a strategy. While the following is not intended to be complete or exhaustive, it is intended to give you a starting point in formulating your own personal business plan for investing or trading. Here are some of the elements of a business plan that I suggest:
1. Will I trade full or part time? (I trade daily only the first 60 minutes of the day.)
2. How much risk money will I assign to the business? (I started out with $25,000) (I define risk money, as money you can lose that will not affect your life or lifestyle. It does NOT include mortgage payment money, rent money, grocery money, car payments, insurance premiums, clothing money, or any other money you absolutely can not afford to lose.)
3. What will be the size of my trades? (Equal dollar amounts, or equal percentage amounts)
4. How will I make my trading decisions? (I make my decisions
daily based on overbought, oversold RSI (relative strength
indicators), and support resistance lines.
5. When will I make my trading decisions? (For me, daily 15 min. prior to the market opening.) In the evenings? Only on weekends? Once a month? It depends on what is going on in your own life.
6. How will I enter? (I use market orders.)
7. How and when will I exit? (When trades reach my objective -1%
loss or +1% to 2+%)
8. What strategies will I employ? (First 60 Minutes of Trading)
9. What are my business hours? (daily 8:30-9:30AM CST) (In my view, this is very important. If you had a store, you would be open certain hours. If we assign business hours to ourselves, they should be treated as exactly that–business hours. It is not a time to play with the dog or have non-essential interruptions, such as phone calls. The business needs to be treated like a business.)
10. What is the maximum number of trades I’ll have in place at any
one time? (I personally only have two.)
11. What type of stops or alerts will I use? (Mental stops, I will
explain why later.)
12. What are my specific trading expectations? (I try to risk no
more that 1%, and manage it so that I will make at least a 1%
gain on half of my capital.)
13. What will I do to increase my trading knowledge?
(Reading, seminars, paper trading, DVD’s, etc... Once you learn my trading strategy . . you will be considered a guru!)
What do you want to be, a business man or a gambler? I choose business man, with a plan.
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I hope you will learn from my years experience as a professional trader.