A Proper Plan of Attack

When you first get introduced to the world of trading for the first time, you begin to hear catchy little phrases like: “Buy low, sell high” or “Don’t try to pick tops or bottoms” or “Plan your trades and trade your plan”…and so on. Obviously there is some truth to these truisms; otherwise we wouldn’t be constantly reminded of them.

In all probability you have heard the saying "if you fail to plan, you plan to fail." This couldn't be truer in the world of trading. None of us begin to trade with the intention of failing but that is just what we are doing if we aimlessly look for trades to put our money into without a proper plan of attack.

When we start a new trade, for most of us it begins when we hit the buy button on the order entry screen. In reality, a new trade really begins the night before when we set aside some quiet time free of the everyday stresses. It’s during this time that we review our current trades and plan for new ones. Planning our trades and writing them out can help make them easier to execute with discipline. If it's written out and in front of us every trading day, we are constantly reminded of why we got into the trade in the first place. If you’re just interested in playing the markets and not spending the time to plan your trades then you are setup to have a gambling mentality and your trading career will be very short-lived as you find yourself caught up in fear and greed making irrational trading decisions.

The first step in planning our trades is to devote some time each day.
It doesn't have to be a huge amount of time, but I suggest you to start with a 30 minute to an hour block of time. Everyone’s trading approach will be different and should be personalized to your own trading style.

Next I might want to start review some price charts.

Now that you have an understanding of the general direction for the markets, you might want to use some sort of scanning software to help you find trades that will work with the current market conditions.

Next, you want to look for strong trends or chart patterns that suggest a stock will move in the direction of the markets.

Now that you’ve found some stocks that look good for the next day, you’ll want to consider any type of recent news event that could affect the stock’s performance.

When evening approaches, it’s back to reviewing your trades and going through the hold process again. Do not forget to manage the trades you’re already in, spend a few minutes checking the charts of your current trades and adjusting the stops accordingly. Following a trading plan and sticking to it is really the only way to consistently profit from the markets. This nightly ritual or routine is extremely important for us to maintain our focus. If we trade strictly from our plan in a ritualistic way, any deviation will become uncomfortable or "unlucky."