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Your trading goals should be as unique as you are. Paper trading and careful research can help you develop a personalized trading strategy that mitigates risk and aligns with your investing goals. Not sure where to get started? The following tips will help you identify your personal goals and create a plan that works for you.

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Set Realistic Goals

Did you know that nearly half of all Americans (45%) regret not investing more in the stock market? That’s why it’s vital to set clear goals and make a plan to reach them. Think about your immediate or long-term investment goals. Consider such questions as:

  • Am I looking for short-term returns or long-term gains?
  • Am I using my investments as a retirement vehicle?
  • How often do I plan on adding to my investments?
  • What is my investing budget?

Setting clear goals — and a budget — will help you develop a plan from the start. It will also help you refine your plan as you move forward.

If you have a family, make sure to include them in your investment planning. And never, ever plan to invest more money than you’re prepared to lose, even if you develop a solid risk management strategy.

Determine Your Risk Tolerance Level

Any realistic trading plan must account for your risk tolerance level. This will determine whether you’re comfortable sinking your money into a hot new startup and whether you want to work toward diversification before you start selecting individual stocks.

Many experienced traders abide by the 1% rule. This simple rule means that you never invest more than 1% of your total trading budget in any one trade. If the trade proves profitable, you can always increase your investment over time.

Age can also play a factor. Younger investors can generally afford greater risk in their portfolios since they’ll have literally a lifetime to adjust for underperforming stocks. But any investor can still use diversification to protect themselves from catastrophic losses.

Start by Paper Trading

Investors who are totally new to the trading world might start by making paper trades. What is paper trading? Paper trading is simply making trades using a trading simulator. Many investing platforms offer some type of paper trading platform. These simulators are designed to emulate the real-world market with a high degree of accuracy. 

Making paper trades costs you nothing — which is exactly the point. Investors can practice trading strategies without risking their own hard-earned dollars. Paper trading for six months or so can better prepare you for the real market conditions that traders commonly face.

Of course, paper trading isn’t just for rookie investors. Even seasoned traders can return to a paper trading platform to try new strategies and refine their techniques. 

Granted, no trading simulator can perfectly reflect the actual performance of the stock market. But by learning the dynamics of trading through a simulator, you’ll be better prepared for the real world of trading.

Define Your Triggers

When do you plan on entering the market? When do you plan on exiting the market? These two questions reveal your “triggers,” the points at which you complete a trade or abandon a particular position.

Seasoned traders rely on technical analysis to pinpoint the right time to take a particular position. Calculating the moving average of a stock, for instance, can give you a general idea of whether the stock is trending upward. 

At a minimum, traders might consider placing a stop-loss order on a particular stock. That way, if the stock drops below a predetermined point, you’ll automatically jettison that asset. This strategy doesn’t completely protect you from losses but can minimize their impact by selling the stock before it drops even further. 

Research Carefully

Trading decisions should be made on pure gut instinct, right? Actually, that strategy is closer to gambling than genuine trading. Even the most experienced traders rely on careful research. This can include thorough, technical analysis, but it can also include broader considerations, such as:

  • The company’s revenue growth
  • The company’s profitability
  • Leadership structures or major leadership changes
  • Historic returns
  • Industry trends

Staying on top of industry trends and developments can help you make smarter, better-informed decisions about what stocks to invest in. While you might sign up for one of many stock research newsletters, it’s also wise to sign up with an investing platform that offers a robust library of tutorials and stock research tools so you can make the most of every dollar.

Monitor Every Trade

Every time you make an investment, your journey is just beginning. That’s because you need to carefully monitor the performance of your trades. Doing so will help you more clearly measure the overall success of each trade as well as determine exactly when to jettison stocks that perform below expectations.

One of the simplest ways to accomplish this is by creating a Google Finance watchlist. You can compile a list of stocks and monitor your portfolio through the intuitive dashboard. The free platform will also provide insights through a custom news feed.

Of course, committed traders may want to go beyond such free resources by investing in a more robust platform that provides detailed analysis and other investing tools. The point is that through careful monitoring, you can learn to make the most of your investments and minimize losses from underperforming assets. 

Keep Clear Records

Record-keeping is crucial for two distinct reasons: personal records and tax purposes. 

Aim to keep a journal of your trading activities. This should include the assets you invest in, your entry and exit points, and the outcomes of each trade. At a minimum, this will provide you with a private record of your trading activities, which can help you reflect on past performance, learn from any mistakes, and refine your trading decisions moving forward.

For instance, once you learn how to start paper trading, you can record these simulated trades. This way, you’ll take advantage of a trading simulator while using your records to help you remember what works, what doesn’t work, and what specific strategies to retain for the future.

Records also matter for tax purposes. When you sell stocks for a profit, you may have to pay capital gains taxes, depending on how long you’ve owned the stock. Stocks that you’ve held for over a year will be taxed at a capital gains tax rate, while others will be taxed at your ordinary tax rate. 

Keeping clear records will ensure that you pay the appropriate taxes on any profits. Your records will also allow you to deduct losses from the market to reduce your overall tax liability or to offset any gains.

Revise Frequently

When it comes to trading strategies, don’t just “set it and forget it.” It’s important to reflect on your trading plan at least once each year — or each month if you’re still a beginner. 

Don’t be afraid to go back to paper trading for at least a brief period of time. If you’re struggling to navigate the market, additional time in the simulator can help you refine your strategy and move forward. 

Talking to other investors can also give you insight into the best trading strategies. But don’t forget that every trading plan reflects the individual’s trading goals. The truest test of your success is found in your ability to align your trading strategy with your short- and long-term investment goals.

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Stay Invested

As you may have noticed, the best trading plans involve more than just paper trading and free newsletters. Investors can benefit from an investment platform that grants them access to the latest news, tools, and more — that’s what you’ll find as a Gorilla Trades member. Sign up for a free trial, and you’ll receive 30 days of free stock picks delivered straight to your inbox.