Stocks And Shares Explained - Devising A Proven Trading Plan For Stocks And Shares

Are you a profitable share investor or trader?

Most shares investors and traders would move into shares trading or investing after learning some basic charting, usually moving averages and begin to invest, either making some money or losing some in the initial stages. This is of course, inadequate and a bad way for a someone to start off trading in stocks and shares.

Why?

A person would want to invest in stocks and shares because he has good positive cash flow but he is assest poor. By trading in stocks and shares, he is seeking a way to increase his wealth by balancing his cash position with a realistic amount of assets that will grow in time to further improve his wealth position. With stocks as the main asset, it is easy to convert the stocks back into a cash by liquidation in the open market.

My personal observation is that 95% of shares investors and traders do not have some wealth creation principles inbuilt into their trading plans, if they do have a trading plan at all.

This may appear harsh, but how many of you reading this, have ever built in a system of savings and leverage into your trading plans for stocks and shares, while you trade?

It is well accepted that to build up personal wealth, you need to save money- put aside the money until it grows into a huge cashpile, or you continue to do this while you are trading, increasing your capital each time you do so along the way.

At the same time, it is wise policy to use other people's money as a leverage- to increase the capital base and to be able to invest more, with the profits paying back the interest incurred by leveraging.

Therefore, if you are a share investor or trader, it is important for you to consider improving your overall trading plan with these wealth creation principles.

Here are the steps to a typical trading plan with inbuilt wealth creation principles:

1. Put up a capital of at least $5,000

2. Against this $5,000 get a margin loan of $5000 from your stockbroker or bank, so that you now have leverage to buy $10,000 worth of shares.

3. Buy good fundamental blue chip shares that comprise the stock index. Generally, you can buy the shares within the top 20 of the stock index. We will discuss the way to purchase them below.

4. Commit a regular monthly saving of minimum $500 to the trading account, with another $500 coming from the margin loan. This is the part of the savings program to boost your capital sum.

5. Use this additional capital to purchase stocks within the top 20 stocks comprising the stock index.

Where you have a bigger amount of initial capital for trading, you may also wish to broaden the base of stocks for trading by monitoring more than 20 top stocks that comprise the stock index. You may go into the top 40 stocks as long as they are freely traded.

With these basic wealth creation principles of leverage and savings incorporated into the trading plan, we will need to identify and select the actual stocks that are ready for trading within the top 20 or top 40 stocks.

In Part #2 of this article, we will discuss how you can trade profitably using a proven technical trading system to continue to build up your portfolio.