Every trader needs to have a trading plan whether you like it or not. What is the reason for having a trading plan? Its just like how you need a trading plan to start up a business and trading is your business and thus you should plan everything out before you execute your trades. This is vitally important because a good solid plan will take out all the guesswork in your trading day. It is best to have a trading plan that states everything specifically from what to trade to where to exit the trade to what is the maximum loss you will have. This way you won’t be surprised or shocked when something does not happen your way as you have planned for the worst outcome beforehand and able to handle it more aptly. The following are points to state in detail in your trading plan:-
1) What to trade
2) What time to trade
3) Objectives for trading
4) What strategies will you use for trading each instrument
5) What time frame(s) will you be trading on
6) How much you will risk per trade
7) What is the maximum drawdown in the day before you decide to stop
Will you have a profit target each day, that, upon hitting it you will stop trading for the day
9) What is your office setup going to be like
10) What is your account size
11) For each strategy you use, determine exactly where you will enter and where you will exit
12) What is the maximum you will lose on each trade
13) Will you trail your stop or will you just set a profit target and exit the trade only when either orders get hit?
14) Will you stare at the monitor once you have entered the trade or will you walk away/ move on to the next trade?
15) How will you control your emotions?
The above mentioned pointers should be more than enough to make your trading day a mechanical one whereby you just have to execute your trade according to your plan with no guesswork. I personally have find that I have performed much better in my trading because I already know in advance what is the worst outcome and what I can achieve with each trade. Therefore my trading day is less stressful and as a result, less anxiety.
An additional tip to further improve your trading plan is to review all your trades which you have taken and give a grade to your execution and exits. This way you can really review your trades and know which trades did well and which didn’t and try and replicate the good trades. I hoped this article has served its purpose in helping you develop a solid trading plan. Last but not least, I wish you trading success!
Dave Lex is a full-time trader and trades the forex and the US stock and options market. He also constantly test and develop trading systems to share with the public. For more information on how you can get one of his high probability trading systems for free, go to http://ProvenTradingSystems.com
