Join Matt and Tim as they cover the current state of the markets and share their thoughts on the importance of having a trading plan.
Many view view trading as a hobby, something to dabble in and maybe get lucky with every now and again. This view is incorrect. Trading is a business; even you trade for an hour a week. In treating it as a business, it should have a plan in place for how you operate. For trading, this takes form as a trading plan; a high-level encapsulation of all the goals, strategies, and trading rules a trader follows.
Description
Join Matt and Tim as they cover the current state of the markets and share their thoughts on the importance of having a trading plan.
Many view view trading as a hobby, something to dabble in and maybe get lucky with every now and again. This view is incorrect. Trading is a business; even you trade for an hour a week. In treating it as a business, it should have a plan in place for how you operate. For trading, this takes form as a trading plan; a high-level encapsulation of all the goals, strategies, and trading rules a trader follows.
It starts with goals: why are you trading? Retirement planning? Growing a college fund? Spending money? There really isn’t a right answer here, but different goals will inform the decision on different strategies depending on the time horizon of the goal. What goes hand in hand with trading goals is determining what kind of trader you are. Do you want to day trade and not really hold any position too long? Are you a long-term investor? Again, no wrong answer here, but the type of trader you are affects the possible strategies you’ll use even more than your goals.
Following your trading goals and trading style will steer a trader to particular trading strategies. Traders that prefer buy and hold will want securities with good fundamentals and dividends, while a day trader only really cares about the technicals of the chart and any outstanding news (earnings, economic reports, etc.). Further, a trader can split a portfolio into different segments. Part of the portfolio could be dividend yielding stocks that have covered calls written against them while another part of the portfolio is set aside for swing trading to take advantage of when trends end or are just starting. The one thing about strategies is that they need to be tested before being taken live. Backtesting with a virtual trading account can help catch a poorly implemented strategy before it’s taken live and causes the implosion of an account.
Notes
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