Stock Trading Strategy

Going into a trade with no plan is like going to a war with no guns. Planning is an important factor that must not be forgotten. Art of war says that planning makes you win a war before even going to the battle. A war is no different from stock trading, your head will roll if you don't have any strategy.

You should not begin a trade without devising some sort of outline for your trade. This must be written outline so you will be able to hold yourself accountable down the road and stick to your guidelines. A written strategy should include the following:

Reason for entering the trade:Why does this trade look appealing to you? Why will this be a worthwhile venture?

Entry price : At what point are you willing to enter a trade?

Exit price: What price do you think the stock will bottom out at?

Time frame: How long do you think it will take a stock to find a bottom?

Profit: How much do you think you will make with this trade?

Stop-loss point: If your trade does not go as planned, at what price do you cut your losses?

It is only after all of this is taken into account that you should begin to trade. At that point, you can calculate how much capital you wish to risk. The appropriate safeguards can then be given to your broker. As mentioned oftentimes, you should not risk more than 1-2percent of your trading capital on any one trade.