When you buy a stock, do you have a plan? Do you have an objective, and are you disciplined?

Over the years I have talked to many investors who don't seem to have a disciplined trading strategy. Like a kid in a candy shop, they simply want to grab the hot story de jour without regard for gains and losses over the longer term. It's human nature to want to pile into whatever is moving. Typically, the stock spikes up on high volume, you buy at the top, and watch your hard earned capital erode when the stock comes back down.

It's in our psychological make up to want to participate when everyone else is jumping on board. Is this the best way to make money in the market?

After years of trading stocks, here's what I know. I can tell you with a great deal of certainty that no single strategy works for everyone. If there was one right way, everyone would use it, and then it wouldn't work. You have to find a strategy that works for you, and stick with it.

In the world of trading stocks there are several widely accepted successful strategies. Here's an overview of three tried and true approaches:

• The Day Trader: Day traders, by definition, are in all cash at the end of every trading day. Day trading is 100% technical. Day traders look to take advantage of intraday volatility by trying to get on the right side of small moves with big money. Day traders try to identify patterns that repeat themselves in order to forecast price movements over very short increments of time with no regard for company fundamentals. To be a good day trader, you must sit in front of your computer all day long, act quickly when the market moves in your favor, and be prepared to limit your losses when the market moves against you.
• The Swing Trader: Swing Traders tend to be in positions anywhere from one day to several months. Most of us probably fall into the category of a swing trader. We are looking to take advantage swings in the market based on a combination of both technical and fundamental analysis. You might find a company you like. Take a look at their business model, industry group, and potential for both growth and market moving news. Once you have determined you like the idea, some rudimentary technical analysis is in order. Take a look at the chart, and make sure your entry level gives you reasonable upside. Don't buy on the days when there are big spiky moves, and don't buy your entire position on the first trade. A good swing trader will decide in advance how much capital they are willing to allocate for an idea. About 1/3 should be invested on the first trade. From there, you can look for retracements to either the uptrend line, to a 61.8% level, or the 50 day moving average. It all depends on your style.
• The Long Term Investor: If you are a long term investor, by definition you are going for long term capital gains. Based on current tax law in the US, the gains you make on any security you hold in a non-tax sheltered account are only taxed at 15% if held over one year. When going for big gains, this favored tax status can enhance your returns significantly vs a 40% tax rate on short term capital gains for those in the higher income brackets. I have found long term investing to be one of the best ways for non-professional investors to make strong returns over the long run. Sometimes it takes companies months and years to implement their growth strategies. Long term investing works really well for those of us with day jobs who don't have the time to monitor moves all day long.

Each of the three trading strategies above are sound when approached with discipline. Here's the question- when you buy or sell a stock, do you know which trading strategy you are using? If you are buying for a day trade, are you prepared to sit in front of your computer until you close out the position at a gain or a loss that day? If you are a swing trader, do you understand the company's business model, upside, and potential catalytic event that could get the stock trading up in future days and weeks? Do you have the time to monitor the position on a daily basis. If you are a long term investor, do you understand the company's market cap as compared to its peer group, and do you understand the long term potential for growth?

I use all three strategies from time to time. When I enter a position, I know which strategy intend for the trade. I rarely day trade. I'm not a good enough technician or brave enough to invest enough money to make it worth my time for an intraday trade. However, if I enter a position as a swing trade, and it goes in my favor during the day, I might choose to lock in the short term profit. It happens every now and then, but it's just luck when it does.

I have one brokerage account that I view as my "trading capital". That money is set aside for swing trades. I have several positions that I picked up for a period of anywhere from a few days to a few months, depending on how the security behaves. I will also use this account to make bets on the market- either up or down depending on whether it is overbought or oversold. I buy in the money puts or calls on the QQQQs to bet on market moves. I use the discipline of a "stop loss" in all trades with my trading money. When I take a position, it is generally 1/3 to 1/2 of what I am prepared to risk. If the security moves against me, I will add another 1/3 to the position as long as it is trading above my stop loss. I also set my mental stop loss when the first trade is done, and simply sell if it gets down to that level. Preservation of capital is a key component in my trading strategy.

For swing trading ideas, I like to accumulate positions when they are quiet and no one wants them. If you see a big streaky move on a chart, you can be sure I have sold either part or all of my position into that move. If you see a big, streaky move down, I am generally buying, depending on the reason for the down draft. If the stock drops because there is a fundamental change which sabotages the original theme, I will usually wait for a bounce and then sell.

I also have long term investments. I have about four times as much capital in long term investments compared to my trading money. This money is tax sheltered through my retirement plan in a self directed program. The money is split between two hedge funds, but it could just as easily be in mutual funds. I average about 20% annually in these two funds. At that rate, I should double my money every four years or so. It compounds since I don't take any money out. All I do is look at the monthly statements.

Today I've presented several trading strategies you might find helpful. If you haven't already, find one or more that will work for you. A lot depends on your circumstances. If your job doesn't allow you time to monitor the markets, you should consider long term investments only. If you have some time and like to trade your own account, swing trading might work for you. Day trading is for pros only.

Here's a certainty: you should have a disciplined strategy going in, and stick to it. If you've bought a stock for the long term, hold it for the long term. Sell it early only if the fundamentals change. If you've bought a stock for a period of days or weeks, stick with the discipline of a stop loss or sell for a profit when your target is achieved.

Trading in the markets without a structured game plan is like having the offense take the field in the NFL without a game plan. Bret Farve does not draw his receiver's routes on his hand in the huddle. It's all planned out. That's why he's #2 for yardage in the history of the NFL. He goes into every game with a game plan. You should do the same when you trade.