I’ve been interested in trading the stock and equity options market before I retired as a software engineer five years ago. So I began my search to learn what I needed to be a successful trader two years before I retired. This led me to purchasing education programs, buying many trading software applications and attending numerous free seminars that all promised to teach how to trade successfully in up markets, down markets or sideways markets.
I’ve been told by too many friends, family members and fellow traders that trading today’s markets is like gambling. Well, they are correct if you don’t know what you are doing, lack education, or throw money at the market expecting to make it rich without a plan. When creating a plan, one of the key elements in planning is knowing yourself.
Become an entrepreneur not a gambler
Successful entrepreneurs have done their homework. They have tested the market place for their product or service, written a business plan that spells out the objectives and goals of their business. They have written guidelines to control spending, profit margins and losses. Trading is a business, not a hobby. You are the entrepreneur in the business of trading. Treat it and your money as a business venture, with goals and guidelines.
Trader or investor
Decide what suits your personality. Traders want quicker results. They are highly disciplined and want smaller profits and cut their losses quickly. Traders are in trades for minutes to a couple of weeks. Or, are you an investor, who will enter a trade for the long term appreciation and are willing to stay with it in the up and down price swings? Investors are typically in stock, bond or mutual funds for years.
Trade what you know
Two of the best investors and money managers, Warren Buffet and Peter Lynch, invest in what they know. Both like consumer goods with the highly recognizable names, like Coke, Johnson and Johnson, and Home Depot. What areas do you know best? What is your chosen career? What stocks, commodities, currencies are associated in your business?
Choose your market
What market holds your interest? Study that one market and how it reacts to news events and other markets. There are 5 major markets which are easily traded on line or with a brokerage firm. They are: stocks, stock options, futures/commodities, currencies and the bond markets. Each of these financial instruments react to current market conditions and are static. Give yourself a certain amount of time to become familiar with your chosen trading instrument.
Create your trading plan
Knowing yourself, by answering the above questions is a beginning to creating a great trading plan that will serve you well. There are many trading plans you can follow by searching the web. In a previous article “Trading Stocks Online — The Value of a Trading Plan”, I outlined some key elements that should be included in the trading plan.
In today’s trading markets knowing yourself as well as being educated, focused and disciplined will help transform you into that confident, successful trader or investor.