The process of trading and investing comes down to disciplined implementation of a defined strategy. I have been teaching this topic for more than 20 years, and it still amazes me how many people fly by the seat of their pants, or some just wear no pants at all. I want to cover six steps that define and implement a disciplined strategy to give you a track to run on. These steps have helped me for nearly 30 years of investing.

Step one: Define your strategy based on what you want. I could probably go on forever about this one topic. All can be accomplished – no matter what can be based on this simple fact. Napoleon Hill said, “what the mind can conceive and believe it can achieve.” This is true about investing your money. It all begins with what you want. Don’t tell me you want to make money! Why do you want to make money? What is the money for? What will it do for you? What will you give in return for money? There has to be something of value in order for money to be created legitimately.

This is sometimes very difficult for investors to define. This is where we have to break it down to the simple. Let’s say you want to retire at  65 and you are currently 55. You want $100k per year of income. We have defined what you want! Retire with $100k of income per year. Take inventory of where you are currently. You have $500k in a retirement account and you are adding $500 monthly, In order to generate the income of $100k you need $1,250,000 assuming an 8% return. Thus, taking into account all the parameters laid out, you need to earn 10% per year over the next 10 years. We have just defined the goal and how to accomplish it. We have $500k, we need to add $500 per month, and earn 10% per year on the money to attain the goal of $1,250,000.

Now, comes the strategy for managing the money.

We know the parameter is 10% per year on our money. This is the tool we use to measure the risk we are willing to take for the expected reward/return on investment. If 10% accomplishes the goal why take more risk? You now know what you want, and the parameters around how to accomplish the goal. So, now you can define the disciplined strategy for investing or trading the money.

Tomorrow we will cover Step Two: Overcoming the four inches between your ears!

Series: Discipline Trading Strategy