3 Crucial Components of a Successful Trading Plan

Dale Gillham and Fil Tortevski

By Dale Gillham and Fil Tortevski |

No doubt, you read this report every week so you can gain some insights into how to profit more from the stock market. This week, my aim is to help you with this endeavour by delving into the three essential components every trader needs to integrate into their trading plan to ensure their success. That’s because trading is more than just making money; it’s about implementing a structured approach that consistently generates profits while mitigating risks.

Why a structured approach will generate more profits

Firstly, you need to have a good strategy or what is often referred to as an 'edge'. Basically, this means developing a well-thought-out plan that gives you a proven statistical advantage over the market. Creating a plan or gaining an edge is far easier than you might think. If you’re a trader, your plan could be based on charts, or if you are an investor, it may include studying the fundamentals of a company. I prefer a combination of both as it gives me the best of both worlds.

It’s most important to stick to your trading plan, even when things get tough. That’s why I advocate documenting your plan to ensure you stay on track. The second essential component is to manage your risk and money wisely. This means using only a small amount of your money on each stock you buy, as this ensures you don't lose everything if things go wrong.

As a failsafe, I recommend you don’t invest more than 1 to 2 per cent of your total capital in any one stock. What’s also essential with proper money management is that you need to use a stop loss to protect yourself from significant losses. This is important because it keeps you in the market even if you have a few bad trades in a row. I recommend setting your stop loss no more than 15 per cent below your buy price.

Finally, you need to keep it simple. Don't make things more complicated than they need to be. Just focus on what you know and keep your trading plan easy to understand. If you're a trader that uses charts, keeping it simple means having a few straightforward rules that you can easily follow.

There is nothing worse than having a bunch of different criteria for getting into a trade that you can’t explain to your partner, as this often results in missed trades because of analysis paralysis or getting into the wrong trades. If you keep things simple, you will be able to make quick decisions with a high degree of accuracy and take advantage of opportunities when they come up.

What were the best and worst-performing sectors last week?

The best-performing sectors included Real Estate, up 2.87 per cent followed by Energy, up 2.85 per cent and Consumer Staples, 2.53 per cent. The worst-performing sectors included Information Technology, down 0.79 per cent, followed by Financials, up 0.85 per cent and Utilities, up 1.06 per cent.

The best-performing stocks in the ASX top 100 included Whitehaven Coal and Alumina, up 9.23 per cent, followed by AMP, up 6.36 per cent. The worst-performing stocks included ALS Limited, down 4.37 per cent followed by Washington H. Soul Pattinson, down 4.00 per cent and IDP education, down 3.08 per cent.

What's next for the Australian stock market?

Although last week was a short week given the All Ordinaries Index did not trade on Friday due to Easter, the buyers continued to show support the Australian stock market pushing price up to a new all-time high of 8,154 points. This resulted in the market rising 1.59 per cent last week creating a solid finish to March with the month closing 2.44 per cent higher.

My first target for this current rise is 8,400 points before seeing any possible resistance, however, I suspect we might see a rise to 8,600 points and possibly beyond. Typically, Easter is a quiet time on the All Ordinaries Index. However, last week’s strong finish suggests this Easter will different.

This coming week is also a short week with Easter Monday, and given the strong close in March, I expect the market to heat up in April. I also expect volatility to increase, which we all need to be prepared for over the next three to four weeks.

Right now, I am preparing our clients for where I see the market heading in the short, medium, and long term and, have recorded my thoughts in a video we have just published on www.talkingwealth.com. I highly recommend you check it out, as I also discuss when the next stock market crash is expected to happen.

I believe the next few years will be the time when fortunes are made and lost. What you experience will depend on your decisions, which is why now is a perfect time to learn how to trade with more certainty than over 95 per cent of all traders to ensure you make the right decisions. Now is not the time to sit on the sidelines as you will miss out on the opportunities and unless you learn, you will likely get caught in the next market crash.

My team and I hope you all had a very happy and safe Easter, and, of course, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.

#1 Leader in Stock Market Education

Invest in yourself. Study with Wealth Within now to fast track your stock market education and begin the journey toward financial freedom. Because lifestyle matters!

Learning Centre

Learning Centre

Talking Wealth Podcasts

Market Report Videos

Stock Market Show