What we call a “trading plan” refers to a systematic method for identifying and trading securities. A trading plan always takes various factors such as time, risk, and your investment goals.
Digging Deeper into Trading Plans
You can create a trading plan in a variety of ways. Investors will usually customize their own trading plans based on their personal goals and objectives. Across the investment industry there are several mechanisms ingrained within the trading market that can also help in the creation of profitable trading plans.
Most importantly, investors try to find trading plans that will provide them some profits. Some investors may seek to create a trading plan that involves automated investing as part of savings strategies. Others will try to use a trading plan as part of an active investing approach that seeks to capitalize on profitable market opportunities by making tactical trades.
Automatic Investing
Automatic investing is one of the best ways to integrate a trading plan as a part of a savings strategy. Brokerage platforms allow investors to customize automated investing at regular intervals. They also provide investor the flexibility to automatically invest funds into designated investments.
Many investors use automated investing to invest a predetermined amount of money per month into mutual funds. Using this trading plan, an investor benefits from automatic investing into managed funds of his choice.
Using this approach, an investor usually accepts the market price of their investment at a specified price. In this situation, investors will generally rely on fund management to manage the risk of their investments however they may make tactical changes over time as market environments change.
Tactical Trading
Many investors opt to use tactical trading plans to invest for various objectives or to take advantage of emerging market opportunities. Tactical trading can be used by both active investors and technical analysts.
Both of these types of traders will in general use customized trading plans to help manage the risks of an investment and tailor it to their specific goals. Technical analysts will depend on charting patterns to guide their tactical trading plans.
Other investors will try to use a variety of screening methodologies to identify investment opportunities for potential profit. In general, most tactical traders will seek to follow and trade around macroeconomic trends which have a substantial effect on the investing market holistically.
Conditional Orders
After an investor has identified an investment for potential profit, they can build a trading plan around it. Conditional orders are offered by all types of brokers to give investors the opportunity to customize their trading plans to meet their specific preferences.
There are a wide variety of orders and trading plans integrating conditional orders that can be used by investors.
Most tactical traders will consider stop loss and profit limit orders in their tactical trading plans. Deploying these conditional orders can help an investor to set limits for losses and gains. One of the most common tactical trading plans an investor will use is the bracketed buy order.
With this kind of order, an investor can buy a stock that they are interested in and simultaneously set a stop loss and profit limit order based on their risk tolerance. The profit limit order provides for a guaranteed gain when the stock reaches a specified price. The bracketed buy order will also generate a specified loss if the stock falls to the stop loss price.