Insurance for any Investment Vehicle

Composing an annual business-trading plan is crucial for trading success. It’s your personal insurance against the volatility of (stocks, mutual funds, etc.) markets. Never trade without one. It’s too risky. I update mine frequently if necessary--covering as much detail as possible. Think of any scenario you might encounter and how to deal with it. In my seminars, I go in depth about the specifics of my own personal plan and the importance of your trading personality. Discovering your trading personality is vital in selecting a suitable market. Whether it is stock trading, options, bonds, mutual funds, futures etc. a trader must know first and foremost the desired market(s) to create a trading plan. Maybe the Dow Jones or S&P 500 e-minis are your style. People who trade, say, penny stocks are different than those who trade utility stocks. How will orders be entered? What frequency will you record stock prices or NYSE tick readings? What is the maximum drawdown? Be plausible and cover the worst-case scenario. Establish clear-cut trading goals. Will you reward yourself and take a vacation with trading profits? Definitely include the percentage of profit you will withdraw from your account and the amount to reinvest. Don’t undercapitalize though. Eventually the guidelines will become embedded in your brain. When I find situations that are not addressed in my plan during active trading, I make note of it. Then I edit after intraday trading is done. Refining your plan is an ongoing process. However, don’t confuse it with breaking your own rules. Never change it mid-day while under the influence of trading. It’s funny; traders are the absolute authority on their trading plans, yet they still break their own rules.