If the amount of money you allocate to trading represents a relatively small fraction of your overall net worth, and your major motivation for speculation is entertainment, a ‘shoot-from-the-hip’ type approach might be fine.
However, if your major trading objective is to grow your money towards a significant objective like retirement, buying a home, or paying off student loans, an organized trading plan is essential.
The first step is to define your trading philosophy. If your answer is vague like “following a hot stock tip from a friend or broker”, “watching financial news media and seeing what’s moving”, or perusing one of the many Reddit forums dedicated to massive speculative bets, you’re probably not ready to begin trading with real money.
A meaningful strategy should be based on either fundamental analysis (analyzing the income statements, balance sheets, and other financials provided by the companies themselves), chart analysis, technical trading systems, or ideally, some combination of all of the above. Note that the same method need not be used in all markets. U.S. equities have a plethora of financial information to dig into, while the futures market is much more aligned with algorithmic trading programs, and some practitioners use old-fashioned chart analysis to good effect. In the end, the more specific the trading strategy, the better.
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