Tuesday, July 1, 2008

Before starting your journey, there are several questions you should carefully consider if you are a newbie. I came across this step by step way to develop a strategy for trading and investing in Invest magazine. The article is by Jack Wong from Optionetics. I posted the questions in my blog for your reading.

What is your business plan?
First of all, you need to have a business plan regardless of your decision to invest or trade. Your business plan should specify your goals and the milestones clearly. Your milestones could be short term, mid-term or long term. It is important to have a business plan because without one, the chances of failure will be high.

What is your time commitment?
Next, you have to be clear about your time commitment based on your personal circumstances. Traders are looking for short-term reward while investors prefer to achieve financial goal over longer period. If you are holding a full time job and works 50-60 hours a week, you really have to consider carefully whether you can become a trader who does day trading?

Which markets do you intend to participate?
The key point here is you shouldn’t get into any financial activities in a market where you absolutely have no clue. Choose to stay with the market where you are more familiar but at the same time keep an open mind and slowly extend your reach to other markets.

What instruments do you intend to use?
Most people are familiar with basic trading instrument as stock. There are alternative instruments available such as options, futures, forex and etc. You can try to keep an open mind to understand and appreciate these instruments and take time to learn how they may be used to diversify your investment.

Remember to keep a diary or journal of all your trading activities so that you may use it as a way to evaluate your past mistakes and seek to improve yourself. As a newbie, you should never stop learning.

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