The 7 Disciplines of Stock Market Investing and Trading

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The 7 Disciplines of Stock Market Investing andTrading

© Bill Wheeldin 2009 –http://www.trading-index.comIntroduction

Whether you’re a beginner to stock market investing, a seasoned speculatorused to investing online or an advanced trader with a tried and tested tradingsystem, it is crucial that you have an understanding of what I call the 7Disciplines of Stock Market Investing. The 7 Disciplines will help you to focus and organize your investing educationand make sure that you don’t overlook any area that may affect your tradingsuccess and profits. To help organize your resources I’ve created a mind map called Trading Index,which covers the 7 Disciplines as well as numerous other topics relating totrading and investing. It allows you to categorize all your digital sources of information and store them on your PC for easy reference. Trading Index is free to download fromhttp://www.trading-index.comHere is a brief overview of the 7 Disciplines together with links to useful onlinetrading and investing resources.

Business Strategy

You may not even think of your stock market investing or trading as a businessbut I think it is useful to have at least some idea of what you want out of it andhow much time you are willing to devote to it.Do you see investing as a way to grow your capital to await you in retirementor do you need income from dividends or bonds? Or do you wish to tradestocks more frequently to produce income so that you can reduce your hours atwork?A useful article on trading as a business can be found on the Elite Trader forumat:http:// www.trading-index.com/businessand one of the best books on trading for a living by Dr. Alexander Elder can be found at:http://www.trading-index.com/businessbk

Administration

Looking after the admin side of investing, e.g. PC backups, trading logs,portfolio management and accounting, is often thought of as boring and takingup time that could be spent trading stocks.Unfortunately, if you’re serious about investing then keeping secure backupsand details of your trades is essential and if you’re successful then you’ll need

accurate records for when the taxman comes knocking! Quick and easy backupsoftware can be found at:http://www.trading-index.com/backupsAlso, if you’re a member of many investing sites then you’ll need a way tosecurely keep track of all your passwords. I’ve found Roboform to be anexcellent way to automate this task and a trial download can be found at:http;//www.trading-index.com/admin

Fundamental Analysis

Fundamental analysis is the gathering of information on the finances, productsand potential profits of a company you are thinking of investing in. It can takemany forms from the reading of annual reports and attending AGMs to simplywalking down the High Street and seeing which shops seem to be busiest.Fundamental analysis is more relevant to investors that plan to hold theirstocks for the longer term and the idea is that they hold companies that havesome sort of intrinsic value so that the stock price will rise over time.An educational article introducing fundamental analysis can be found on theInvestopedia site at:http://www.trading-index.com/fundamental and a good book on getting started in fundamental analysis can be found at:http://www.trading-index.com/fundamentalbk

Technical Analysis

Technical analysis is the study of stock price movements, which is usually donewith the help of some sort of graph or chart. This shows the fluctuations of thestock price over time and can help traders to time the purchase and sale of astock.As you may expect, this sort of analysis is usually performed by traders whoonly hold their stocks for short periods of time, sometimes only seconds, beforeselling. An in-depth analysis of stock price movements can help traders todevelop profitable trading systems, sometimes even to the point of automatingthe purchase and sale of stocks to eliminate the human factors that maketrading such a difficult task to master.Another article on the Investopedia site introduces technical analysis:http://www.trading-index.com/technicaland an excellent introductory book canbe found at:http://www.trading-index.com/technicalbk

Money Management

Money management is a vital discipline that needs to be mastered if you intendtrading or investing for very long. Without it you will soon find that your capitalis eroded with the inevitable losses you will face as a trader.Money management involves assessing the risk of loss before you enter atrade and managing the trade once you are in it. This includes knowing where

to place your stops and having a plan in place to take profits as your trademoves in your favour. All these factors can be combined into a trading system,which all successful traders develop in order to maintain discipline and helpthem to pull the trigger.A useful article on money management can be found at:http://www.trading-index.com/moneyand a book on developing a money management system canbe found at:http://www.trading-index.com/moneybk

Trading Strategy

This brings me to the next discipline, trading strategy. A trading strategy bringstogether most of the elements I have discussed so far, into a system thatidentifies what you will trade or invest in, what timeframe you will trade over,how much you will risk on a trade and it will include rules for entering andexiting trades once profit targets are reached or stops hit.A trading strategy can be developed over years of trial and error and includeyears of trading and investing experience or it can be bought on the internetfor $47.00. It’s your choice. However, one thing is clear – a trading strategy isnot static; it changes over time as the markets change and as you as aninvestor or trader change your outlook and risk tolerance.An introduction to developing trading strategies can be found at:http://www.trading-index.com/tradingstratand an encyclopedia of tradingstrategies at:http://www.trading-index.com/tradingstratbk

Psychology

The final discipline is psychology, but just because I have put it at the enddoesn’t mean that it’s the least important. Quite the contrary, since I feel thatthe most important element in whether you will be a successful trader or not isyou.Have you got the motivation to educate yourself for the months or years it maytake to become successful? Have you got the discipline to develop and refinetrading systems to give you the best return with the lowest risk? Have you gotthe courage to pull the trigger and enter trades once all the factors are in yourfavour?For an extremely successful program that will help to strengthen yourpsychological make-up for trading visit:http://www.trading-index.com/psychologyand for a book on improving your trading performancevisit:http://www.trading-index.com/psychologybkRemember, the 7 Disciplines are there as a framework for your investingeducation and cover most of the topics you will encounter in your early yearsas a trader. Make sure that you consider all the disciplines and you’ll have asolid platform to build on.

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