Stock Trading Strategy - Key Considerations In a Stock Trading Plan

At the core of a trading business is the stock trading strategy, so before choosing a stock trading plan or system, some questions must be asked and answered. Several criteria must be met in order to satisfactorily achieve the objectives of the investor, and the strategy determines the system used. The criteria encompass several considerations vital to having a trading system that suits the trader's personality so that is can be traded comfortably and well. In order to achieve the optimum strategy and plan, this article examines these considerations and questions to be asked.

As part of creating a stock trading strategy, an essential matter is the trader's time available for trading. The desired level of involvement as a trader in the trading activity goes right along with time available. Time considerations include both how many hours can be set aside for trading plus when and from what those hours will be taken. For the person that has a family, a job and a busy life, full-time day trading would likely not be suitable.

Another crucial item is capital turnover time. Capital turnover time is how long a trade lasts, or how quickly capital is turned over and can be used to enter another trade. The greater the capital turnover time, the fewer the number of trades can be placed for a given account size over a given period of time. Another aspect of capitla turnover time is that of annual account ROI vs. per-trade profit. The lower the turnover time, the higher potential annual ROI, even with the same per-trade profit. The trade off is that shorter term trades require much more work and involvement than those with a greater turnover time. Finding the desired balance is a critical decision for the business in terms of stock trading strategy. The desired annual ROI is an overall determining factor. Depending on one's desired income and wealth-building objectives, one may choose an aggressive or conservative approach.

Working within the trader's comfort zones to have a good fit with the trader's personality is another essential aspect of a stock trading strategy and stock trading plan. Ideally, the trader should be able to follow the system and rules fairly easily . Good trading is quite difficult when emotions come into play and affect the trader's decision-making. A strategy or system with aspects that are too far outside the trader's comfort zones often contributes to this problem.

Certain attributes of a stock trading strategy should be aligned with the comfort zones of the trader. A reasonable winning percentage is necessary so that confidence is not lost through losing trades that occur too frequently, yet are inherent to the system. Right along with this is a tolerable maximum drawdown, for the same reason. A system should not be too limited regarding market conditions and should be fairly robust. Most importantly, the stock trading strategy and system must have a sufficient profit-potential for without it the financial goals of the business will not be met.

One must have a well-reasoned stock trading strategy in order to achieve a consistently profitable and reliable trading business. Once a system is chosen, it must be backtested, analyzed and measured so that the aspects are within the trader's comfort zones and have a realistic potential to fulfill the profit objectives. Prior to any money being risked in the markets, backtesting and review of the metrics should be conducted so that the confirmation is completed without risk.

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