Developing an investment strategy would possible be one of the most important steps in becoming a successful stock market trader. Creating a strategy can be quite simple, the difficulty for most traders is either implementing and/or sticking to their investment strategy.
Define your Investment Goals
Have a clear understand of your short term and long term investment goals. Every investment should in some way move you closer to your investment goal.
Avoid Speculation
Do not listen to ‘hot tips’ from friends, family or work colleagues. Do your own stock analysis and make your own decisions.
Diversify
Your portfolio should represent a variety of stocks in different sectors. The reason for this is that different sectors follow different growth patterns and companies in each sector tend to follow the same pattern. For instance the resources sector may be riding high while technology may be tanking. Granted some stocks will rise and some will fall therefore with a diversified portfolio the average movement will be positive.
Risk Tolerance
With investing comes a certain amount of risk. Before trading determine the amount you are prepared to risk. Whether the amount be in dollar terms or a percentage of your capital. It is a good guide to never risk more than ten percent of our capital on any one trade.
Patience is Virtue
Warren Buffet once said ‘lethargy, bordering on sloth, should remain the cornerstone of an investment style.” So very true! There is nothing wrong with waiting patiently for the right trading opportunity to present itself. Take advantage of the time on the sidelines and continue your research and analysis. The perfect trading opportunity will present itself. Remember – ‘if in doubt, stay out’
Don’t Look Back
Don’t look back. Once a trade is closed – move on! Do not kick yourself for selling too early. Accept that all factors cannot be known. There will be successful trades and some that fail. Deal with it – or buy a crystal ball!
Conclusion
Developing an investment strategy that suits your needs and goals can take some time and effort. Break your trading strategy down into sections, for example, short term, mid term and long term goals. By breaking your strategy down into sections, this can help alleviate a sense of being overwhelmed, it can also keep you motivated and focused on your final goal.
Take care,
Stock Trading Mum
{ 7 comments… read them below or add one }
Great article. I’ve just become interested in the Stock Market especially now Sean has a new blog Stock Market Education. I have a friend who’s done very well from Shares. He’ll be pleased to see I finally have an interest in learning the Stock Market.
Stock Trading Mum is another blog post I will follow with interest.
Thanks for your comments Jill, and I wish you luck on your Stock Market journey. Just remember to take it slow, do your research, and don’t forget to paper trade for a few months before entering the market.
I notice that there are a lot of emotional undertones in your advice. In my words – don’t feel pressured by friends, avoid the urge to invest more than 10% at a time, don’t punish yourself for making a mistake, be patient, don’t invest unless you are certain, etc. It sounds to me like investing is not for people who are emotional roller-coasters. Having a good investment strategy is therefore only a part of the formula, having the emotional self mastery to stick to it is equally important.
Wal Heinrich recently posted..Transportable Homes To The Rescue
I tend to agree with you Wal, one of the hardest aspects is taking the emotion out of trading.
Simple straightforward advice about developing an investment strategy. Wall is correct in saying mindset plays a massive part in success in the stock market. I look forward to seeing you elaborate on these points in future posts.
David Moloney recently posted..Paint Net How To Tutorial
It’s taken me 25 years to realize what you have reconmended in your column. But I am committed to this strategy and forget my mistakes. I have plenty of investing years ahead of me and I am confident that this time I will succeed.
Interesting post because many people ignore this information… so important and clear.thanks