A profitable trading plan is one which has a combination of different types of securities and financial instruments which diversify the risk and maximize the returns. If you wish to be a successful investor in the stock markets then you can follow the tips mentioned below.
Find out about different types of securities
Find the different financial instruments which are there in the financial market. Find out the return and risk ratio of these investments. Higher the return more risky is the instrument.
Do some fundamental analysis and technical analysis of the stocks
Find out about the sector in which the company is operating, find out the growth of the industry in the two to three years. Study the historical prices of the company stock in previous years. Find out about the growth pattern, the strategies of the company and the steps taken by the company in recent times to expand their business. Collect information about the dividend policy, P/E ratio of the company.
Study the previous trend in the company stocks. Monitor the prices and other indicators to judge well prices of the stocks, profitability and growth of the company.
Decide the term for which you will invest different securities
Frame a portfolio. After deciding the ratio in which you will combine different securities, decide the term for which you will hold these securities. You can plan them for short term, medium term and long term. There are securities which you can hold for long term to make profits. This is especially for the government securities. These are the least risk securities and they earn profits in the long run. Similar is the case with the bonds. Some securities can earn you profits in short term. You can actively trade stocks of some companies to earn profits in short term.
To be on the safer side you can be a medium term trader. If you are a beginner then you can start as a medium term trader.
Time your trade
The financial market rises and falls. When it rises you make profit and when the market falls the stock prices fall and you face losses. To minimize the losses study the market trends carefully. A good trading plan should minimize the losses and help you earn profits. Monitor the daily swing in the prices of the stocks you hold. If you smell any drastic swing then take immediate steps.
If you trade in forex market then take a note of stop loss and trade profit. Stop loss help you to move out before any down swing in the currency prices take place.
There is no formula to device a perfect trading plan. But you can follow the above mentioned steps to increase the profitability of your trading plan.
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