Steps for Creating a Trading Plan

For investors who like to be hands-on with their investments, the following steps will help them to know how they are performing and how they should be performing in the market. Check them out!

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Assess Your Standing

The first step is to know where you currently stand. In general, for instance, younger investors should typically be more willing to take on risks.

Your time horizon, which refers to the amount of time before you need to touch the money, goes together with your age.

If your time horizon is 25 years or more, you can consider yourself to be at the top of the risk profiles. This doesn’t mean that you can be reckless when investing. What this means is that you can fully participate in the stock market when you want to.

See What You Own

Afterwards, you have to be aware of what you already own. Check the most recent reports from any investments or plans you already have. Then, find the percentages of what you have in stocks versus cash.

You can then decide how much you want to spend on your personal investing. Your goal is to find an actual number in terms of hours per week.

A higher ratio of individual stocks to funds means that you have to commit a higher amount of time. If you have some time, you can try and own a few individual stocks in your portfolio.

The ratio of how much time you will allocate per individual stock will depend on your knowledge of experience.  That means the ratio may change over time.

Information Sources

Don’t forget to check reliable sources of information and stock analysis. There are publicly available information easily using free internet sources where they publish earnings reports, press releases, SEC filings, balance sheet, and cash flow statements.

Find a reputable website and know when it is usually updated. Stick with these sites and you can rest assured that your information is current and accurate.

Determine your guidelines to organize your due diligence. You can review stocks by market cap minimums or a valuation cap minimum to filter down thousands of stocks. You can even use free stock screeners to accomplish this.

Come Up with a Strategy

When drawing up a strategy, you can create a base allocation with mutual funds or exchange-traded funds. Doing that can take a lot of pressure off your back since you don’t have to select every item on the portfolio.

Find which area of the market is the most interesting for you. You can choose according to sector, industry or asset class. You can then gain an experience of managing this portion of your portfolio more directly.

It is also a good idea to have a “watchlist” of stocks that you have researched. Review the list weekly to find any substantial changes.

Reassessment and Strategizing

Come up with a regular schedule to assess your progress. For one, you can find how your returns are stacking up to some benchmarks. It is also your time to review your overall asset allocation and your learning curve.

For example, if the proportion of stocks to bonds in your portfolio has shifted a lot, you may want to put that back into balance.

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