Stock trading is huge in the investment market. Imagine buying shares of a company and becoming a part-owner of it. If the company makes a profit, then you’re entitled to a portion of it, depending on the number or value of stocks you own.
To invest in a profitable company, you need to have a goodstock trading system. This refers to the set of rules that helps traders know when to enter or exit trading so they can earn money from the trade.
A stock trading system typically uses a real-time chart where you can see the price actions in any given trading day. It’s also through a stock trading system that you can see the hot picks for the day, as well as previous performance.
By looking at these data points, you can decide to execute a trade or when to buy and sell. Your order to sell or buy a stock will depend on the parameters you set in your trading system.
Benefits of a Stock Trading System
- Easy trading. You’ve created a trading plan, so you can easily trade based on it.
- Objective trading.Since you know up to which point you can cut losses or take profit, you won’t fall for making decisions based on impulse or emotions.
- Expert trading. The more you stick to your trading plan, the better you become at trading since you know what works and why or otherwise
How to Create Your Stock Trading System
Keep your stock trading system simple and efficient with these steps.
- Define your goals
Every financial pursuit is made with specific goals in mind. To help you do your goal setting right, remember the SMART rule: goals should be specific, measurable, attainable, relevant, and time-based.
An example of a stock trading goal would be to increase the value of your portfolio by 10% in the next six months. Here, you have specific figures that are reasonable or attainable. You can also measure how you performed at the end of the sixth month.
Part of your goal setting may also include the amount of time you’re willing to commit to trading activities. Whether it’s before or after work, you need to find time to manage your trade, especially if you’re going for short-term trading where you can take advantage of deals that last as little as seconds or minutes.
- Pick your strategy
Depending on the type of trading style you’re comfortable in, here are some of the methods you can choose from:
- Swing trading—This involves holding your position over several days up to weeks to take advantage of medium-term market movements.
- Trend trading—As the name implies, this style of trading works by identifying when a stock displays a sustained price movement in a single direction and setting exit rules when the trend changes.
- Mean reversion—This strategy assumes that trading prices will go back to their average or mean values, at which time you can decide whether to buy or sell.
- Start building your stock trading system
As mentioned, you’ll be setting parameters for your trading system. These parameters should include:
- Trade setup, which defines the conditions that are suitable for you to look for trades
- Entry signal or the price at which you can buy or sell securities
- Initial stop loss, which indicates the level you would get out if your trade suffers a loss
- Exit signal, which specifies when you would finally close your trade or reduce your trading position
- Document your trades
It doesn’t matter what type of format or document you choose to record your trades; what’s important is to use your trading journal to find out what’s working, where you need to improve, and so on.
Record all the details of your trade, including entry and exit points, and the rationale for your trading decisions. Then, find time to review those details if you ever want to change anything in your trading strategy. Document the outcome again until you find where you can be most successful.
Hopefully, these steps can help you prepare to trade confidently and successfully. Happy trading!