Thursday, October 29, 2015

The How, Why, & What (Developing Your Plan III)

We must all suffer one of two things: the pain of discipline or the pain of regret or disappointment.
Jim Rohn

Now that you have your life and financial goals written out, the how to attain them begins. There are numerous ways to go about attaining these financial goals. It would be impossible to list them all, in these short dissertations. I will talk today of your investment and/or trading plan, which may be but one part of your overall plan. Other parts might be furthering your education to get a better job, or starting your own business.

If your intention is to trade the markets try and remember; investing/trading is a business, no different than if you were to start any new business, such as opening a store front or
other business on your own, to attain those goals.

Write out a Statement of purpose....

  • Why do you want to trade and invest in the stock market? • What do you hope to gain
    from trading?

  • What are your trading goals?
  • How do you plan on becoming a better trader?
  • How are you going to use your trading plan?
  • Clearly define your purpose for trading and investing.
State your goals and what you hope to gain and achieve through trading.

These questions might contain statements such as: I believe the markets to be the best place to utilize my speculative capital. I can attain a return on capital that is superior to other forms of investment, i.e. starting a business, investing in a business or just fixed income securities. I’m sure I can reach my goals sooner utilizing the markets.

List everything that you can think of at the moment that will help you achieve those financial goals. Then cull that list after it’s written down. Take your time, this is not something you should rush, opportunities will always be around. If you focus your attention you will spot them with more ease than if you ignore these steps.
I know it sounds like a lot of work and it is, however once completed it will pay enormous dividends over time 

Thursday, October 22, 2015

Developing Your Plan II

When it is obvious that the goals cannot be reached, don't adjust the goals, adjust the action steps.
Financial Goals

Goal setting is a standard methodology used by business-people, top-level athletes, and achievers in all fields. It gives you long-term vision and short-term motivation. Goals will focus you on your acquisition of knowledge and help you organize your resources.
  • Goals help you decide what is important for you to achieve in life / as well as in your

  • Goals separate what is important from what is not. Goals once crystallized in your mind, motivate you to achieve them. • Goals help build self-confidence based on measured achievement.

  • Goals need to be complete and focused, much like a road map. Remember the difference between a dream and a goal is the written word, the map to get there
  • Make sure the goals you are working for are things that you really want, not just something that sounds good.

  • Develop goals in all areas of life. Be precise; set precise goals, that you can measure your achievement against. • State each goal as a positive statement.

  • Set priorities: where you have several goals, give each a priority.

  • Write your goals down; this crystallizes them and gives them more meaning and force.

    Without financial goals and specific plans for meeting them, you will drift along, leaving your future to chance. The first step in determining financial goals is to determine your long term goals first.

    Identify and write down your longer term financial goals, these goals could be such things as saving to send your kids to college, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, planning for retirement or anything else that will probably take years to accomplish. 

    Most people have fewer long-term goals but they are lofty in size and require disciplined commitment. These goals are often achieved by:

  • Adopting a practical lifestyle that stays within your means

  • Investing cash from your earnings each month, quarter, or year • Investment
    education to instill the confidence

  • The discipline to continue investing regularly 

Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals. Work on formulating these goals (for you...not what someone else may think). 

Thursday, October 15, 2015

Developing Your Plan

If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much. 
Jim Rohn
While it seems that every investing and trading web site or blog thinks they have all or many of the answers necessary, for you to make money, nothing could be further from the truth. And that includes this site “The Prudent Trader” Why do I say that? Simply, because we are all different, we all have different time frames upon which we operate, we are at

different stages of emotional development for the markets, differing financial conditions, different risk tolerances, different methods of operation, and different trading psyche’s to mention just a few.

If you believe that to be true, then there is no one method or system, pundit or guru recommendation, that is suitable for all. You as an individual must put together a plan suitable to you and you alone. Fail to make a plan and you plan to fail. You are not reading this because you are planning to fail.

I hope you enjoy and perhaps pick up a thing or two that will aid you’re investing and trading in the future. A trading plan should be unique to you and no one else. My trading plan or the plan of some well-known investor/trader is in all probability not suitable for you.Before developing a trading plan you must have an overall “Life plan” of which trading/ investing is but a part.

There is an old saying in business: "Fail to plan and you plan to fail." That may sound like just a slick saying however, if you are serious about being successful you should follow those eight words as if they were written in stone. Ask any successful trader and they will tell you, "You have two choices: you can either methodically follow a written plan, or fail."If you have a written trading or investment plan, congratulations! You are in the minority.

It should be understood that having a plan is not a guarantee of success. What a plan does is eliminate one of the major roadblocks. Even if you have a plan, if it utilizes flawed techniques or lacks preparation, your success will not come immediately, however you will be able to modify your course by documenting, learning what works and perhaps most importantly avoid repeating costly mistakes.

While no one has all the answers, and volumes could be written on the subject, I hope this short series will guide you and I also hope you will begin thinking for yourself.
Initially, most novice investors, perhaps unknowingly, adopt a "seat of the pants" approach.
They act in a variety of ways; a hot tip; a magazine or newspaper article; a recommendation from a friend; or perhaps TV commentaries or analyst recommendations. Often they are most anxious to buy after stocks have already risen substantially and the economic outlook is the rosiest. However, quite often this is the time to be selling your stocks and not buying them.

Why a management plan? A plan is simply a road map that will take you where you are looking to go. If you do not know where you are going, ask yourself, "How are you possibly going to get there?" Every business has a plan. Every professional has a plan. An investor or trader needs a plan too. Imagine for a moment building your house without a plan ---- I am sure people would come from miles away, just to see!

Thursday, October 1, 2015

Always Manage Risk

I have learned that nothing is certain except for the need to have strong risk management, a lot of cash, the willingness to invest even when the future is unclear, and great people.
Jeffrey R. Immelt
As traders there is probably nothing more thrilling than correctly anticipating the markets or a particular stock and making a huge profit off the trade. You feel on top of the world. After a good winning streak it is very tempting to let lose and start making some big trades, after all, you are invincible, at least for now. Although you should take advantage of a hot streak when you hit upon one, you must avoid acting recklessly, it can destroy you. I have
personally seen it too many times, the "BIG idea". Because we are hot and we sense a big move coming, instead of following our plan, our proper position size, we decide to risk it all. We buy as many shares or contracts, as we have dollars in our account, and margin it to boot. The market goes against us, but we feel OK because we are hot, and we know we are right. The market will soon realize that we are right. I don't have to finish this because you know where it leads, at least I hope you do. Even when on a hot streak, you must, for long-term survival maintain discipline and manage risk. 

After making a series of winning trades, you want to celebrate; you should. However, you must avoid thinking, "What do I have to lose? I'm far ahead of the game. I can take a little more risk." What is the harm of taking big risks I'm way ahead? The problem is you really do not know that your next set of trades will be wins, and when you take unnecessary chances, it is as if you are working under the assumption that you will tend to win in the future. No one has a crystal ball! Trading is about taking advantage of probabilities. From the perspective of probability theory, it is possible that you will continue to win, and by making larger trades and lowering your limits, you will reap big rewards. But in all likelihood, the next series of trades may be losers. If you don't continue to manage your risk, you'll tend to give back all your profits and more. 

One may not fully consider the realistic possibility that a losing trade is on the horizon. It is important that you maintain a little skepticism, though. It is nice to feel you are running hot, but remember that your hot streak may end as quickly as it started. Never let your guard down. Always be prepared for your luck to change. An unexpected defeat is often more devastating than an expected probable setback, always be ready for a potential loss. By remembering that a loss is always possible, and that it is not a big deal, you will be prepared, and won't be fazed when it happens. 

Managing risk is a trader's secret weapon. Do not take unnecessary chances. Trading is a game of survival. Sure, you must make big profits while you are running hot, but you must avoid mounting huge losses when you are running cold. Do not be caught off guard. Consider every possibility. Continue to manage risk. It can go a long way in helping you stay profitable in the long run.