The best way to succeed in the stock market is by having a detailed trading plan. This plan involves the time you’re willing to dedicate to the market, the money you’ll be trading with, the system you’ll be using, and the kind of returns that you expect to have. The problem is that most traders haven’t even heard about having a plan…

If you’re in this situation, or if you’re writing your own trading plan right now, just check the following things that should be on it:

1 – How much money you’re going to dedicate to the stock market: This is an important decision, since you shouldn’t trade with money you cannot afford to lose. Just imagine the worst case scenario: you’re trading with money that you shouldn’t be using, and you start to lose one trade, two trades, three trades. even if you start to win and make 3 profits in a row, it might not be enough to be in the break even. Also, don’t forget the emotions that will be involved when you’re losing. And these emotions will start to be a part of your trading, leading you to even more losses.

2 – What kind of strategy will you be using: You can choose from day trading, position trading, swing trading or even long-term investing. In this decision make sure you consider the time you have available to trade and your own personality. For example, if you have the time to be in front of your computer all day long, and you’re a risk taker, day trading might be a good option for you. In case you just want to have an extra income from your savings to retire, you can consider position trading or long-term investing. Just don’t make the mistake of choosing a specific strategy because you heard is more profitable. All strategies can be profitable – the right choice is to pick the one that suits you best.

3 – Decide if you’re a technical or a fundamental trader: A technical trader bases its trades mostly on charts, and sometimes uses some indicators, like the moving averages, RSI, etc. He believes the past price action is all he needs to know to see if the stock is headed up or down. On the contrary, a fundamental trader bases his trades on the company’s financial reports. He looks at the balance sheet, checks for the money (or debt) the stock has, its capitalization, etc. to make his trading decisions. But you can also be both: a technical and a fundamental trader. This in fact is where the equilibrium is: by knowing the company’s financial, you’ll have a good idea if the stock is over or under-valued; and by looking at the charts, you’ll know if this is the best time to enter or if you should wait.

4 – The amount of money you’ll put in a single trade: This is a very important aspect to consider that most times is forgotten. You need to know how much money you’ll place in one trade, but also the amount of money you’re willing to lose if the trade goes against you (by using a stop loss), and how much you’ll be making in case the trade goes to your target. The ideal case is that you have a 2:1 risk / reward, which means that your target is at least twice your stop loss.

5 – Prepare your trading diary: A trading diary is a useful tool that allows you to see all you’re doing right and wrong. In this trading diary you should take note of all the trades you made, why you made them, how you felt when you were in the trade, and the result you got when you close the trade. Simply put, you should write all the details you can remember off, including (if you want) screen shots of the charts. Why?! You’ll be able to learn from your own mistakes and repeat the things you’re doing right. The all purpose of taking all these notes is that you can read it and learn. Keep some time in your agenda to read your trading diary and analyze it deeply. I can almost bet that this will help you find out about a problem you never knew about and that’s causing you some losses. Find it and fix it.

These are only five key points that should be on your trading plan. They are just some ideas that can help you get started.