Be an Investor with a Plan

Do you plan every trade you make? If not, why not?

PLAN IT: Write down every trade. Think carefully about why you have bought a company, set a stop loss and target and then stick to them. Decide on your timescale. Is it a short-term or a long-term trade?

How much do you want to make from it and how much are you prepared to lose? Keep a diary of all your trades and be honest with yourself: if you're losing money you can then look back so as to work out what's gone wrong. Take it from me: not having a plan is one of many fundamental errors that often made by traders.

Some things to avoid:

Penny shares with wide spreads - look I know how tempting they may appear but resist the temptation to buy tiny companies in the hope of making a million. Occasionally, you can pull it off but in general you will end up a big loser. Also be wary of anything with a spread of more than 3%

Be wary of AIM shares. Not all of them of course as the top 50 are ok. But be careful of the illiquid ones.

Don't buy shares in 'one-product' companies: if the product stops selling, the shares will tank - as was the case recently with Stanelco.

The same is also true of small drug companies: their top drug may not get approved and the price could plummet.

Don't buy shares that are falling heavily and never try to guess when the bottom has been reached.

To avoid at all costs:

Don't buy shares just because you suddenly fancy it without having done any research and because some bloke on a bulletin board may have tipped it

You must do your own research work and plan out all your trades properly. Don't fall for rushes of blood to the head!

A good example of a company that no one in their right mind should ever have bought is Chariot, which went from 220p to 5p in just two or three days and has recently gone into administration. Small Investors piled into Chariot as it was lottery related and sounded exciting - even though the risk was obviously huge. Despite this, investors were egging each other on to buy the shares.

A look at the Chariot chart would show even a basic stop loss would have prevented most investors from losing too much. All the classic signs of a bad buy were there: a one-product company, wide spread, no earnings and an unproven track record. It is always advisable to buy established companies that have proven profit makers.

So there - that's my boring old fart rant over... but I've seen these mistakes made time after time by the unwary!

The markets continue to be okay. October came and went without a full blown crash. I think many investors feel that November could be a poor month this year... so if that's the case then we should all hope for that pre-Christmas rally.

Some great risers for me recently: Big Yellow Group continues to show great strength as do many smaller caps which will shortly enter the FTSE smallcap index such as Creston, Vislink, and Abacus.

Next time I shall reveal how the markets help me to pay for all my Christmas presents every year!