Tags: investing | investment plan | investment strategies | round-trip | shares | stock | stop-loss

You have decided to go it a try, it’s time to build a plan for your investing strategy.

Think of it in terms of preparing dinner. To be most effective and efficient a plan helps. To make a pasta dinner you buy the appropriate ingredients and prepare them for the meal. For successful investing the same principals apply. The meal being ready to eat equates to the selling of the investment.

A sound investment strategy consists of an analysis process and execution plan. The analysis works best when it is a simple and manageable method, the famous buy-low-and-sell-high comes to mind! The execution of the strategy involves two parts, an entry (or buy) point and an exit (or sell) point.  

There are hundreds of tools and resources available to help with your investment decisions. One place to start is with the market status, which gives you the big picture, think ‘all the types of pasta available’. This is just one piece, to narrow our focus we need to define the scope. As an example if we decide our meal will be made with spaghetti pasta, many decisions still need to be made, whether you choose fresh pasta and/or which brand.

Back to investing, let’s pursue a stock strategy. To target small cap companies on the rise the parameters to use for analysis could be as follows:

• Small Cap
• Daily Trading Volume greater than 200k
• Stock Price greater than $10 per share
• Choose two from the top ten based on your intuition

Let’s name the strategy top gainers, which yield’s several interesting companies such as Oshkosh Corporation (OSK) and AO Smith Corporation (AOS). We execute our strategy by buying stock shares of both these companies.

Meanwhile, in the kitchen the pot of water is almost boiling, my red sauce is simmering nicely; it includes a bunch of vegetables and meatballs. Back to our new investment, it is wise to monitor and track the share price. As part of the execution strategy we define target exit points. For each investment there are only two exit options, one is for profit, and other is for loss. One of the simplest ways to build the exit points is a percent of purchase price methodology. For example, you may choose a 10% stop-loss and a 20% gain exit point.

As I put the finishing touches on the meal for my family, I check the markets and note that Oshkosh is up 21% from my buy price – time to sell and AO Smith is down 10%, also time to sell. We have successfully complete what is called a round-trip trade. Having a strategy is critical to ensuring your best chance of investing success. Keep in mind there is no guarantee that your investment return will always be positive!