Related to the previous post: Market Psychology: Fear And Greed Part III, it was wrong to write about how to beat the repetitive psychology: FEAR and GREED that always haunts traders. As I explained in a previous post, the most important way to beat that psychology is to create and stick to your TRADING PLAN. With a trading plan, your path will be straighter and less tempted by unclear stocks.
Then you ask: "What kind of trading plan is it?"
According to my definition, a trading plan is for the capital management planning strategy of traders and investors in mapping out a portfolio of options, setting indicator analysis strategies and setting take profit limits (maximizing profits) and minimizing losses as small as possible, so that they can get consistent profits, which in the end can make a profit. profits are big.
So the trading plan keywords here are:
- Portfolio planning
- Planning of preferred indicators
- Maximize profit
- Minimize cut loss
- Capital management
The purpose of the trading plan: very clear to prevent you from psychological conditions that could potentially attack you: FEAR and GREED, as I described in previous posts about trading psychology. The end goal: you make maximum profit and minimum loss.
OK you already understand what a trading plan is and why it is needed. Later I will explain more about the usefulness of this trading plan. Maybe many of you are impatient and ask: "So how do you make a trading plan?"
This is where I will give you a brief advice on how to make a trading plan for the beginner - advanced stage, based on the keywords above. I just started.
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You are a beginner, a real beginner... Then what should I do?
First. Determine the trading timeframe. Do you want to trade daily, weekly, or even become a scalping trader, entering and leaving the market in hours or even minutes? If you choose to be scalping and trading weekly it's fine, but keep your funds separate. For beginners, I advise you to trade daily, about 2 days - 1 week. The goal is that you learn more about technical analysis and study market movements. Thus, you can be more sensitive.
Second. Capital planning and capital management. The beginner capital I recommend is in the range of IDR 1,000,000 - IDR 1,500,000. Don't be more than that. After that, you plan to have a maximum of 3 portfolios. Never spend 100% of your funds on the stocks you buy. Always leave funds in your account balance. To manage capital, discuss the trading plan clearly, please read the post again: Fund Planning for Stock Trading, Read also: Illustration of Buying Shares with a Capital of IDR 500,000
Third, prepare a portfolio of your choice. My advice, try to choose a portfolio of LQ45 stocks. You must own the stocks of your choice which you use to trade. The goal is that you are not easily trapped by stocks whose movements are not liquid. Have you read the post: Using the Right Stock Diversification. Also read: Setting Stock Options Trading. Also read: Traders Must Have Preferred Stocks.
Fourth, prepare indicators that are suitable for you. Every indicator used by others may not be suitable for you. Therefore, you have to start with trial and error to try the indicators that are suitable and suitable for your trading. Read the post: Classical Technical Analysis Vs Modern Technical.
Fifth. Well this is the most important part that should NOT be ignored by every trader. What is that? Determine take profit and cut loss limits. When buying stocks, you should already know when you don't profit and when you cut losses. Then what percentage do I have to take profit and cut loss?
Actually, the take profit must be at least 2x more than the cut loss (take profit: cut loss = 2:1). If you are an expert, take profit must be 3x more than cut loss (take profit: cut loss = 3:1. In essence, you must be as big as possible by narrowing / minimizing the cut loss limit as much as possible.
But if you are a beginner, it seems difficult if you have to set the take profit as large as possible and the cut loss as small as possible. Therefore, my advice for beginners, you set a discipline cut loss of 5% with a take profit of 6-7% .. Please see the table below.
The first target is not to get as much profit as possible, but is so that you can profit consistently and you suppress losses consistently. a cut loss of 5% looks quite heavy, but at least you learn first. Once you have started to understand the market, you already know the limits of cut loss and take profit. You can lower the cut loss limit with a bigger take profit. You can increase 2x see take profit: cut loss = 2:1. The following are suggestions for take profit and cut loss if you are already starting to understand market conditions and the ins and outs of trading.
If you are already proficient, you can increase your take profit and minimize the cut loss percentage. And of course, this is the end of everyone's goal for trading and at the same time the ultimate goal of maximizing profits and minimizing losses as small as possible.
If you ask again: "How long does it take to become a pro and be good at maximizing profits and minimizing losses?"
There are no definite standards. However, if you've only been in the stock market for 2-3 years, then I'm sure you're not strong enough to move up to a pro position. Just imagine, a Christiano Ronaldo (CR). CR can play in big clubs, like Manchester United and Real Madrid, score a lot of spectacular goals with captivating skills, does CR only need to train for 2 years? Of course not right? CR needs years of practice, maybe even from an early age.
It's the same with stock trading. If you want to be proficient, start by learning, start by making a trading plan. Returning to the fifth point discussion, it can be concluded as follows:
"Take profit and cut loss should be determined based on your trading plan, not based on the bid-offer queue". You should already have a trading plan in place and you should try to stick to your own trading plan.
Sixth. Discipline and consistent. This is the most difficult part to implement. If you buy a stock, you set a take profit of 5%, then the price suddenly goes up 5%, immediately not making a profit. That is the meaning of discipline and consistency.
Many traders are trapped in market conditions. They actually already have a trading plan, because they see the stock price rising fast, they keep hoping, and in the end those who should have made a profit actually lose. Too bad isn't it?
"But sir, I have been disciplined and consistent in carrying out the trading plan, how come there are so many cut losses, right?"
If you keep cutting losses, it means that something is wrong with one of your trading plans. THE BIGGEST POSSIBILITIES are: You read the indicators incorrectly, are not sensitive in predicting market movements, the indicators you use do not match your character, or you even buy illiquid stocks. So, if you continue to cut losses, immediately improve your analysis method.
Then you are still not satisfied and return to reply: "Hahaha cut loss? What do you do? After all, the price will also increase, if you cut loss, you will lose, then you will lose."
Cut loss is part of the trading plan. If you do not cut loss, your time and capital will be lost. Why? Because with the cut loss as early as possible:
1. You save your capital.
2. You can move/buy shares at low and good prices.
Compared to holding nyantol stocks that you can sell, why don't you just switch them to stocks that can make a profit? Also read post: The Cause of Stock is "Stuck", Traders Don't Want to Cut Loss
That's about how to make a trading plan that I recommend to you. Remember that was a suggestion. Adjust yourself to your conditions.
So sir, is it when we make a trading plan that we can make spectacular profits?...
Please see the answer in the next post: Creating a Trading Plan (Beginner - Expert) Part II (Trading Consistency Plan).
