How to make a Trading plan ?
How to make a trading plan- I get this question from new comers frequently. I really love to answer the question. I tell them whatever i have learned from my experience and mistakes. But the irony of fate is that traders don’t seem to listen to advises. Most of them continue to trade without any real trading plan. And as a result, they get the biggest punishment!
Well, as you have requested to demonstrate this matter again. Once again, I gonna discuss how to make a trading plan in proper manner. But before starting to read, you must promise me that you will prepare a trading plan of your own and follow it in every trades.
Let’s have a look on this excellent video tutorial that I found on the net.
Why trading plan?
There multiple benefits of having a trade plan, ranging from the creation of a stress free trading environment, reducing Trading mistakes to becoming more aware of market behavior which in turn allows you to make very specific advancements. If you are not having a Trading plan, or if you are looking for ways to leverage the benefits of the use of a trading plan, this article will show you exactly how to take your trading to the next level. Whether trading stocks, currencies or commodities, a detailed trading plan helps to solidify a trading strategy and encourages adherence to a well-developed trading system. An effective trading plan details the steps that a trader must follow when entering and exiting trades. Without a trading plan in place, traders are more susceptible to trading mistakes, over trading and making impulsive decisions in volatile markets, particularly when trading online. Here are the steps for making a trading plan.
What is a Trading plan?
We are going to talk about how to create a trading plan in detail at the end of this article, but to use the information and advice from this article in effective manner, we will briefly explore what is a trading plan first. Basically, a trading plan is like a sheet of route for your day/week of trading. In the weekend, a trader analyzes markets, consider trades and creates potential ideas of trading. In the plan of trading, you need to capture important observations and project the possible trends. You need also to creates the so called “if-then” scenarios that will help you make better trades – more on that later.
Optimize your Trading Plan
I may be the first to admit that the drafting of a plan of trading takes time; I personally spend 3-4 + hours every Sunday, making my own business plans. However, I would never start my week of trading without having a plan of trading next to me. And, secondly, it helps to reduce the time I need to spend ahead of the cards during the week and I’ll never look at the charts for more than 1 or 2 hours during the week.
The majority of traders do trade exactly the opposite: they never look at the charts during the weekends and then waste much time looking at the cards during the week in a disorganized way. Especially if you are not a full time trader with everything and have other responsibilities in addition to trade, reduce your screen time and certainly you can do a big different in its trading.
Do Stress free trading
One of the main benefits of having a plan of trading is that it removes most of the stress and eliminate many of the emotional problems traders may face.
A trading plan forces traders to analyze the markets in details and without the pressure of the mobile markets live, allowing traders to take a more objective look at price movements. At the same time, after you have created a trading plan, you will know exactly what to do, when you have to do and what is expected from the markets. Trading then becomes a game of waiting, in which you let prices come to you and do not have to hunt down trades and flip randomly through time frames.
This is how a trading plan helps to overcome the most common problems:
Consistency of more Successful Trading
Each trader always speaks of achieving consistency and be consistently profitable, but nobody knows how to get there and they focus on the wrong things. Consistent results only can be accomplished following a consistent routine and noise elimination. In trade, the noise comes from taking jobs that do not coincide with trading rules, missing the proper trading steps and then chasing after price, inconsistent risk management, changing indicators or methods, and the list continues.
A trading plan and a force of routine that view with objectivity to its trade and allows you to create a more relaxed business environment. After having previously planned trading with your trading plan, it is more difficult to break trade rules because you have to convince yourself that this is what needs to be done; It takes more of the same routes that also allows you to make a better assessment of performance; become more aware of what to trade once you spend more time to plan your trading; and that it acquires more confidence following a routine and practice of the discipline.
An underused tool of trading: price alerts
I’m trying to get this message across for a long time that I am a great believer in the use of price alerts. It can be used to reduce the minimum observation time and also to reduce the number of lost trading chances that come from following a routine of trade.
When I create my business plan, I identify key price levels and put my alerts of prices around these areas of prices that could trigger a trade. When a trade alert goes out, can compare with my trading plan I have to do and if the configuration of prices offers a trade or not. Prices with back orders alerts should not be confused. A price alert does not mean that I automatically took a trade, but it helps me to be aware of everything and I am not losing price movements, while not having to see the graphs.
Always remain open to changes
A common mistake that many traders make while creating a trading plan is that they create a strong bias towards a direction. When you enter a trading plan, always reach the scenarios for to long and short trading ideas. A trader who only focuses on one side of the market is more likely to lose tracks to cancel its business or ends up forcing trades because it is too fixed in your unique idea.
Checklists for creating a trading plan
From top down:
I always start my trading scheme in the weekend in every week and for the daily time frame. I just look for the general direction of the market and mark the most important key price levels.
Update and maintain the relevant moves:
It is important to maintain the levels and relevant chart tools. Keep your chart clean and easily readable. Never have indicators tools and others that your charts doesn’t need.
Short, precise and expressive:
Remember, the objective of a trading plan is to help make decisions better and faster. When you spend too much time reflecting on your plan of trading to find out what you need to do, the valuable point can be lost by that time.
This is the heart of each trading plan. Add some if-then scenarios into your trading plan, to come up with potential trade ideas and write what has to occur before entering a trade. Here I write about everything down where the price has to go, what my indicators have to show, if I need a small or bigger boost, etc.
Levels those are identified in the daily and weekly time frame and where I have my price alerts to the should be a good part of the plan.
After the end of the week, add the result of the trading of each trading plan. This step helps to check once more how well did you perform this week and executed your trading. It is a simple and very effective way to audit your trade and find unnecessary errors.
The Bottom Line: How to make a Trading plan
There is a reason why aircraft are the safest transport from and why the hospitals are able to significantly reduce the mortality rate. That is because they work with checklists and plans. If the trading is taken seriously, you have to start to use a trading plan to eliminate noise and create a professional business environment. It is the easiest and most effective way to instantly improve your trading approach and outcomes.
You can take help form a number of other articles, Here are few important links about how to make a trading plan :
Investopedia: 10 steps trading plan
DailyFX: 4 points of trading plan
Wiki how: Making a trading plan