First, this is a continuation of the exercise for developing a online stock trading plan for your day trading business.  It is something that you should create and review every quarter, just as you will review your trading history. This plan will help you keep on track.  Then, you can modify the plan each year as your online trading experience matures.

In the previous article we focused on the why you trade and how to deal with distractions.  So, in this article I’ll discuss three more areas your plan needs to address. These are:

  1. What markets will you trade?
  2. What online stock trading strategies will you use?
  3. And how do I measure the quality of my trades?

What Markets Will You Trade?

I cannot stress how important it is to define boundaries for your markets.  Every day you will read and hear information that will tempt you into trading unfamiliar markets. When you start to drift into unknown waters, you will start making poor decisons.

Determine what markets you will trade in for this yeear. Beginners should only focus on a few markets.  A few means no more than three markets.  Once you determine your market thent that is where you will trade for the year.  Do not venture into something that sounds “perfect”.  There is always something.  There will always be more.

As a day trader I’m focused on a mini Dow (YM) and 30 year bonds (US). My markets for swing trades are gold (GC), stock options and specific stocks.  Furthermore, I allocate 25% of my online trading funds to intraday trades in the YM and bonds; 25% to swing trades in Gold, 25% to stocks and 25% to stock options.

What Online Trading Strategiy Will I Follow For Each Market?

This is a crucial piece of your online stock trading plan. In fact, it is more important than how much to allocate to each market.  When you follow a specific strategy for each market you can evaluate the performance.  For intraday trades, I will use the following strategies:

YM: gap plays and pivot plays
US: doldrums play

For swing trades, I will use the following plays:

Futures: daily crossovers in the direction of the weekly charts
Stocks: emerging new companies, high relative strength index and high earnings
Stock options: daily crossovers in the direction of the weekly charts

How do I measure the quality of my online trading?

I rank my trades from 1 through 5 based upon the following levels:

1: Stop Hit
2: Out at a different price than stop, but at a losing price
3: Out at even
4: Out at a different price than target, but at a profit
5: Target hit

To track my investments, I keep all my trades in a spreadsheet. Then, at the end of the day I add up the ranks for all my trades and divide by the number of trades.  That gives me an average rank for the day. At the end of the month I add up and divide to see how things averaged out.  Thus, over time, my goal is to end the month on the high side of 3-5.  So, if I’m ending up on the losing side 1-3, then it’s time to discuss strategies with a mentor.