Beginner’s Guide Part 8: Trading/investing plan
For some people, their plan is to have a plan and it ends there. But, the difference between the successful and those who are not successful is that they have goals, and plans and they execute these plans. They also learn from their failures and refine their plans.
Do you have a plan/strategy?
What is a trading plan?
A trading/investing plan is exactly what it says it is. According to Investopedia, a trading plan is a systematic method for identifying and trading securities that take into consideration many variables including time, risk and the investor’s objectives.
Your plan will cover things like the instruments you will trade or invest in and even how long you will stay invested in these instruments. Also, it may cover the tools and strategies that you will use in your trade or investment journey.
What will your trading or investing plan cover? Let’s consider a basic example of a basic plan (just a few examples.) This is just an example and guide only. You can design a plan that works for you.
Why am I trading or investing?
Here you want to document what drew you to the game. What are you aiming to achieve by investing or trading in the instruments you are interested in? Therefore, this part of your plan could go something like this:
“I am trading because I realised that trading is more profitable and rewarding than keeping my money in a savings account. Also, trading is more fulfilling than when you look at your money market statement at the end of the year. You can earn more rewards via trading than you can through a money market account, as an example.
I welcome the challenge, and through education, consistency & persistence, a specific trading plan, a proper mindset and the right tools, I will overcome the challenges and succeed and prosper in the financial trading arena. Also, I want to be able to generate income whilst in retirement (passive income from dividends and CGT)”
What is my approach?
Here you are going into your strategy a bit. How will you trade or invest? How much are you starting with, how much will you add monthly, and when will you enter or exit a trade or investment or asset.
Therefore, this section of your plan could be something like:
“I MUST ALWAYS HAVE 12k TO 20K SET ASIDE TO TAKE ADVANTAGE OF GOOD POSITIONS. I will also have an emergency fund, this will be kept in my money market account. This will be utilised for emergencies so that I do not have to “force sell” any position. I want to hold 36% stocks, 5% crypto, 15% options, 20% in property, 11% in bonds and 9% other digital assets. I do not have to have a big portfolio, 4 to 7 good stocks at a time are good…”
What are my goals?
We have already spoken about your why in earlier publications. But now you need to be more specific about what you want to achieve from the “game.” So, this section could be something like this:
“Daily — To check how my trade & positions are doing and if there are any entry or exit opportunities. Also, I plan to follow my trading plan and never move away from it.
Short term — to increase my trading account wallet to R100 000. Therefore, I will need to invest at least R3000 every month into Stocks starting June 2023. I need to invest at least R3000 every month into cryptos starting June 2023.
Yearly — To reinvest my gains and increase my returns to increase my net worth. My net worth target for 2022 is R1 million rands.
Long term — To increase my investment account value to R1 million. I intend to increase this by a million or more each 4th year. To increase my positions when the data tells me to do so…”
What obstacles will I face?
Here, think about the possible risks that you face and find ways to reduce these risks to acceptable levels.
Therefore, this section of your plan can be something like this:
“Lack of capital because I have to pay black tax and other debts at some point. But this will be overcome in the long run as I make more returns and more income, not increasing my expenses and being able to do the same and invest more. Also, I will pay off my debts before I start investing.
Incorrect reading of charts leads to poor decisions. But, this can be overcome by learning and acquiring as much knowledge as I can about charts and graphs and trading and investing. Therefore, I will invest a lot of time in learning and will commit to lifelong learning.
Making wrong assumptions in speculative decisions. No one can time the market. The only way to manage this risk is by in-depth research and analysis and ignoring the noise.
Using emotions to make decisions. I have to remain true to facts and not use emotions to make buy or sell (call or put options)”
What markets will I trade or invest in?
Here decide where you want to put your money. Make sure you understand the cost of moving money to these markets as it may affect your returns. Remember what we said about transaction fees? Go back to part 4 if you need to understand this again.
What tools will I use?
Document the tool you will use and what you will use them for. Some of the tools you may use may include but are not limited to:
- Moneyweb (news, SENS, analysis and watchlists etc)
- Easy Equities (Investing and watchlists)
- Tastyworks (investing, trading, options, analysis)
- Investing.com (analysis)
- DMA — https://dma.co.za/ (investing)
- Tradingview.com (Analysis, news, charting)
- Yahoo finance (news, analysis, charts etc)
We could go on and on, but in the interest of keeping things short, we will end here for the purposes of this series. But there are many other things you can include in your trading plan such as:
- Why are you trading into cryptos
- What is your strategy
- What is your entry strategy
- What is your exit strategy
- When will you take profits or when will you limit losses
- What will be your pre-market activities or routines
- What action will you take post-trading or investing
- What will be your risk management strategy or techniques? Will talk about risk management in the next few chapters of this book.
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Are you learning anything from this series? Do you want to share any pointers or experiences?
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