Stock trading can be a highly lucrative profession for you, provided you have done the right amount of planning to excel. While some consider trading to be a form of gambling, the reality is that your profits and consistency of winning depend largely on your strategies and execution and not luck.
The best stockbrokers learn from their mistakes and experiences and develop unique strategies to trade in the market. However, all of them do set some common targets and have similar preparation stages. Once you’ve decided to start thinking about your investments and what instruments to trade, you should look for valuable guidance. When asking for professionals’ advice and helpful insights, make sure you point out the best opportunities. Everything you will need to make a successful trading journey from now on is to invest in foreign stock markets proven to match your investor profile. This article gives an overview of how you should plan and set your goals and why it is essential to do so.
Planning for Stock Trading: Best Practices
1. Decide How Much You Want to Earn (or Lose)
Suppose you are a professional stockbroker working for an institutional brokerage. In that case, trading is your full-time job, which gives you your monthly salary, and if you are a part-time trader, trading is a source of additional income.
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In either case, it is best to set a number or a target you want to achieve as your profits. Your goals can be on a daily, weekly, or monthly basis, or even in the long term (for example, you may plan to use all your stock trading earnings as retirement funds).
You should decide this number ahead of time so that you don’t fall prey to the two most dangerous enemies of any trader: greed and fear. By setting a realistic limit, you control the urge to make more money and also avoid the fear of not making enough. Similarly, you can also set a limit to cap your losses by deciding that you would only trade until you lose a particular amount.
2. Follow the News
The stock market movement is often the result of human emotions and perceptions, which is why keeping yourself up-to-date with news from the financial sector can help you stay ahead of the curve.
For example, if you read in the evening news that a specific company’s Q1 results are much lesser than expected, you can presume that the share price will fall when the market opens the next day. So, you can plan accordingly and sell off your shares before the price drops.
If you are one of the risk-loving traders who engage in extended-hours trading, such events can give you a significant edge over others since there are very few other active brokers at those hours. For the futures market, in general, index futures are excellent indicators of the market mood.
3. How Much Time to Devote?
A concern that part-time traders have is to plan how much time they should set aside every day to trade. Ideally, a trader must be alert throughout the trading hours because the prices can fluctuate at rapid rates, but part-timers cannot afford to do that. However, you can prepare yourself such that you make the most of the 2-3 hours you trade.
The market is typically most active or volatile in the first hour after opening and in the last hour before closing. Checking the numbers in the final hour also gives you the chance to close deals or hold on to them overnight.
If you are a pattern day trader and have less than $25,000 in your margin account, you will face restrictions in your day trading activities. In such scenarios, it would be advantageous to engage in overnight trades.
4. Monitor Your Progress
Every stockbroker makes mistakes in their career, but those who succeed learn from their errors. A good practice you should follow, especially as a novice trader, is to maintain a journal to jot down the details of your trading activities.
For example, you can note the total investment, the number of shares sold and bought, any other relevant statistical data, and your mistakes every day. Most online trading platforms like Trading View, have inbuilt features to track your performance over time. You can get reports and analysis charts on a weekly or monthly basis, sometimes with feedback as well.
At regular intervals, look back and figure out what trades worked well and what did not. Most traders specialize in specific markets or securities because they develop an edge over others in that domain. As you analyze your progress, you can also choose your area of specialty.
5. Become Familiar with Technology
The stock market today is impossible to imagine without technological tools, everything from market predictions to high-frequency deals. The developments in the sphere of stock trading are all about making trading entirely automated so that machines can handle orders on their own.
So, even if you are an amateur trader, you should learn how to make the most of the tools available to you, like simulators and market analyzers. As a professional stockbroker, you should know how algorithmic trading works, when to use it, its limitations, and how to improve it further. It is important that you appreciate the computational power of such systems and plan to use them effectively in your trading strategies.
6. Mental and Emotional Readiness
The last point to check before you start trading is to ensure you are well-prepared mentally and emotionally. It could take a couple of months or years to get used to the risk factor involved in trading, and it takes considerable willpower to keep emotions out of your trading activities.
Remember, your tools to succeed should be data, statistics, your strategies, and importantly, a calm state of mind. If you feel angry, upset, or fatigued, avoid trading until you feel normal again.
Practice Makes Perfect
After your planning stages, you may not feel ready to tackle the market because of the inherent uncertainty and risk. If so, sign up for online paper trading platforms where you can buy and sell virtual securities in a simulated market. Once you have practiced enough and are confident, you can place actual money at stake.
As a novice trader, ensure you absorb all the lessons you learn from these simulated sessions. In your early days, make your goals about the learning process; as you become experienced, you can set your goals based on results.