Most ordinary investors in the stock market lose money. However, there is a way to make big profits and avoid big losses (no guarantees, of course). This is article #2 in the series about such a trading system. It shows samples of a Money Management Plan and a Stock Trading Plan for use with this system. (Note: This information is meant only for experienced stock traders or investors.)
Warning - you must take sole responsibility for any losses you suffer in the stock market.
Technology Update
Using these plans -- The following plans normally would be set up on a spreadsheet so that most of the values can be calculated automatically, once you have inserted the proper formulas.
Here again, most of the decisions are made ahead of time. This eliminates any influence from your emotions and/or crowd behavior during your trading activities.
Definitions for these plans -- A low risk market I define as one that is not being influenced by outside parties for their own purposes. This can be determined by the absence of (1) propaganda in the mainstream media and/or (2) erratic or unexpected price movements.
A medium risk market I define as one that may be influenced by outside parties for their own purposes. This can be determined by the presence of (1) propaganda in the mainstream media and/or (2) erratic or unexpected price movements.
A high-risk market (which should never be traded) I define as having (1) constant propaganda in the mainstream media and/or (2) reoccurring erratic or unexpected price movements.
I define propaganda as news or commentary that makes you (1) worry excessively and/or (2) want to take some action or refrain from taking some action, which may not be in your own best interest.
Money Management Plan
This plan is prepared using the guidelines from the Stock Trading System (per previous article). Then it is updated, if needed, right before taking a position in the stock market.
Semi-Permanent Values
Maximum pct in market sector -- Low risk: 30%
Maximum pct in individual stock -- Low risk: 10%
Maximum pct in market sector -- Medium risk: 15%
Maximum pct in individual stock -- Medium risk: 5%
Percentage to use for market fluctuation: 25%
Percentage of safe value for required free cash: 10%
Lowest value for required free cash: 2,500.00
Changing Values
Market value of stocks: 15,000.00
Cash in brokerage account: 10,000.00
Total value of brokerage account: 25,000.00
Less 25% allowed for market fluctuation: 3,750.00
Safe value of brokerage account: 21,250.00
Cash in brokerage account: 10,000.00
Less required free cash (per above): 2,500.00
Cash available for trading: 7,500.00
Prohibited transactions: Selling stocks short, trading stocks on margin, trading stock options, and taking a position in a high-risk market.
If the stock market ever becomes difficult or dangerous to trade, you might want to use some of your risk capital to purchase physical gold and/or silver and keep it in your possession.
Stock Trading Plan
This plan is prepared using the guidelines from the Stock Trading System (per previous article), and the current values from the above Money Management Plan. Then it is updated, if needed, right before taking a position in the stock market.
Permanent Values
Stock name: Pot of Gold
Stock symbol: POT
Exchange name: NYSE
Market sector: Technology
Semi-Permanent Values
Type of risk: Low
Current price range: 23.4 to 26.2
Expected price move in six months: 75
Changing Values
Safe value of brokerage account (per above): 21,250.00
Maximum 30% of safe value for a market sector: 6,375.00
Less safe value already in the market sector: 3,825.00
Extra cash allowed for the market sector: 2,550.00
Maximum cash allowed for individual stock: 2,125.00
Cash available for trading: 7,500.00
Cash limit for new opportunity: 2,125.00
Cash allocated for new opportunity: 1,000.00
DISCLAIMER -- Stock trading is not appropriate for everyone. There is a substantial risk of loss associated with trading the stock market. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using this methodology or system or the information in this article will generate profits or ensure freedom from losses.
Make Money Investing in Stocks - 2
More information -- For more details about these plans, see the Investing in the stock market topic on my website.
Want a better life? -- You can explore many ways to have more money and/or increase your personal power on my http://www.moneymagic1-2-3.com/ website.
Charles Moorehead was a certified public accountant for 40 years. After receiving a series of breakthrough revelations, he is now devoting his free time to helping people overcome the barriers to a better life.
Copyright (c) 2010 by Charles Moorehead. All Rights Reserved Worldwide.
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