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Updated on Dec 18th, 2023
What is a Trading Plan?
A trading strategy is a structured method of identifying and trading securities that take into account a variety of variables, including time, risk, and goals of the investor. A trading plan shows how a trader will find and execute trades, including the conditions under which they will buy and sell securities, how large a position they will take, how they will manage positions, what securities can be traded, and other rules for when and when to trade.
Most trading experts recommend that no capital be risked until a business plan is drawn up. A trading plan is an examined and written document which guides the decisions of a trader.
Analysing the Trading Plan
Trading plans can be drawn up in various ways. Investors usually can design their trading strategy based on specific expectations and priorities. Trading plans, particularly for active day traders, such as day traders or swing traders, are very long and comprehensive. They can also be straightforward, for instance, for an investor who wants to make automatic investments in the same mutual funds or exchange-traded funds (ETFs) until retirement each month.
Automatic Investing and Simple Trading Plans
Brokerage platforms allow investors to customise the regular intervals of automated investment. Many investors use automated investments to invest a particular amount of money in mutual funds or other assets each month.
While the process is automated, a plan that is written down should still be based on that. This way, the investor is prepared for what's going to happen every month, and the preparation process will also possibly cause them to think about what to do if the market is not going their way.
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