Plan The Trade, Trade The Plan!
- Ronald van Rensburg
- Jun 2, 2022
- 2 min read
A lot of people are eager to make a quick buck and don’t realise that trading and investments take patience and a lot planning before execution. A lot of people trade mostly on rumors or what someone says at a BBQ but funny enough when buying a car, they will input more effort into their research than they would in making investment decisions that will impact their future. So how do you start? You start with building an investment strategy.
First things first, you don’t just trade any alerts or signals without first doing your own analysis and research to see if the trade provided is actually valid or supported with the correct fundamentals. It should be understood that there are many different types of trading strategies and each of these are suited to different individuals and each of these needs to be made their own for any trader to be successful, some of these being swing trading, day trading and scalping.
Once you are familiar with which trading strategy best suits you then you can start getting into the analysis of things. Idea generation is key to any trader because this is where your analysis starts off. Will you be looking at how policies and global events impact instruments or will you be looking at a specific instrument and the events and news surrounding this one? These are called top-down analysis and bottom-up analysis and which one you use relates back to the type of trader that you are.
After you have managed to generate an idea, you need to start analyzing the fundamentals of the respective instruments. Are they overvalued compared to the current market price; what is currently happening in the global economy that will impact price changes, etc.? Once you have defined the value and potential in the instruments you need to use technicals (charts/indicators) to tell you when to enter into a trade. The one cannot be used without the other and walk hand in hand and doing so will lead to a trader’s downfall.
Your analysis will define the trade and when to place the trade however once you made that trade you need to fully trust in your trading plan. Trading psychology plays a big part in any trader’s day and this, again, relates back to what type of trader you are and if your trading strategy suits your personality. Building mental strength to endure the drawdowns, and being able to trust in the work you have done in placing that trade whilst seeing the plan through, is key and will always be required for you to be a successful trader. Manage your mind whilst managing your risk. As they always say, high risk equals high reward but ensure that the risk you take on is kept mostly to systematic risk to ensure optimal returns on investment.
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