How to Create a Trading Plan & Track Stock Purchases

Trading stocks with a well-defined plan can bring about more consistent success than trading based on emotions, news or gut feelings. Creating your own trading plan according to your personal investment objectives, risk tolerance and experience can provide a road map for achieving your goals in the stock market. In the same way, tracking your stock transactions over time can help you refine your personal strategy by analyzing trends to spot opportunities for improvement. Knowing how to create a trading plan and track stock purchases is essential to consistently improving your trading statistics.

Define Your Plan Objectives

Determine the overarching philosophy that will govern your trading decisions. Define your time horizon, or the average length of time you wish to hold stocks before selling them. Understand how much risk you are willing to take on individual stocks and how much money you are willing to risk in the market each day. List the industries, countries or regions in which you are most interested, if any, as well as your target price range for new purchases.

List Fundamental Requirements

With your basic objectives in mind, determine the financial parameters that will alert you to analyze a particular stock. This can include the results of certain financial-statement line items, such as quarterly revenue or cost of goods sold, or the results of financial ratios such as times interest earned -- also called the interest coverage ratio -- or return on assets. Keep these requirements in line with your objectives to ensure consistency in your buying decisions. For example, if you have a high tolerance for risk, you might look for companies with above-average revenue growth that pay no dividends. If you have a long trading time horizon, as another example, you might look for companies with long records of dividend payments and consistent profitability.

Define Technical Triggers

Define the combination of chart patterns, market conditions and technical indicators that will signal you to buy or sell stocks that have made it through your fundamental screening process. Use this part of your plan to make live trading decisions for stocks you have already chosen to invest in. You may have more than one strategy in this section of your plan, depending on the stock in question and the current market conditions. You may use a moving-average and momentum-indicator-based strategy for short-term trades in trending markets, for example, while timing your trades around quarterly earnings releases for dividend-paying stocks.

Track Your Transactions

Create a spreadsheet, table or list to track the details of your stock transactions. Record the ticker symbol, purchase price and date, sale price and date, commission paid, quantity traded and length of time held. Track buy and sell transactions together for a single stock for a more complete picture of each transaction's profitability. Your trading platform or broker may be able to furnish you with these reports automatically, but creating your own tracking system can allow you to add any custom information or notes you choose.

Keep a Journal

Briefly note the reasons for each stock purchase and sale next to the corresponding row in your transaction records. List the factors that triggered your decisions, what you were feeling at the moment and what you learned from the experience. If you are refining any particular aspect of your trading, note how that aspect came into play for each trade. Look back on these records from time to time to spot trends in your trading outcomes, and refine your plan and strategies as needed to improve your consistency.

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About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

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