Continuing with my theme from last week, I decided to expound upon the trading plan. In last week’s article I mentioned being able to diagnose problems with your trading in order to repair it. To be able to identify the problem, it is critical that you have consistent trading so that you can see what is or isn’t working. You can only become consistent by following a detailed plan.
A trading plan is a necessity for traders. Many people feel that they can trade without one or that it is too tedious to write one. Those are the people who usually struggle to become successful traders. One of the biggest barriers to trading success is a person’s emotions. It is natural to experience fear and greed while putting your capital at risk. However, by following a written plan, you are more likely to minimize those emotional effects on your trading and can remain more objective in your analysis of the markets.
A good trading plan should have several key parts to it. The first part is identification of your goals and motivations for doing the trading. The first response to this from most people is that, “I’m doing it to make money!” While this is true, it is not enough to motivate a person when their trading gets tough or they hit a rough spot.
Noting your true reasons will have a larger impact on you to lift your spirits and motivate you to succeed. Reasons are different for every person but some may be:
- To replace my traditional job income with trading
- To ensure I can pay for a great college education for my children
- To take care of my parents
- To enjoy a better lifestyle for my family
- To retire earlier/better
The next part of the plan should detail your risk and money management. You want to be specific here. Write down how much you will risk per trade and per day. Keep the amount small in comparison to your full amount in your account so that you do not damage your account with a bad trade. Remember, if you lose $1000 on a $10,000 account, that is going to be very damaging both financially and mentally as you are likely to be more nervous or revengeful in future trades.
You also need to detail out your trading strategies. You should include the exact set ups you are seeking and list the specific criteria that would signal your entry into the trade. Being more specific may limit the number of trades you can take but will also make sure you are taking only the highest quality trades. This is why we teach the odds enhancers in our courses at Online Trading Academy. We want to be as selective as possible with our trading.
There are many more details that go into a trading plan. I have listed some of the major points here. To learn more about how to create a plan for you, attend one of our courses and learn the tools that successful traders use to make consistent profits from the markets.