Having a trading plan is one of the necessary and most important conditions for successful trading for a trader. A trading plan helps novice traders avoid the effects of emotions on trading. It should contain all or the maximum number of options for the development of events and response actions of the trader. Strict compliance with the plan is the basis of success.
How to build your trading plan? First of all, it must be compiled in writing and always in front of the eyes of the trader. When compiling it, it is necessary to analyze the market and take into account the skill level of the trader. Each trader should know their strengths and weaknesses and take them into account when drawing up a plan. This is both the level of professional knowledge of the market, and its psychological characteristics. The plan necessarily includes the level of risk that we can allow for the transaction. In most cases, traders risk no more than 1-3% of capital, maintaining the ratio of possible profit to loss as 3: 1 (or 2: 1). Only such a ratio will allow you to trade without large financial losses and allow you to keep the account as long as possible.
The trading plan includes: the choice of the traded financial instrument, a detailed description of the entry and exit. Description of actions for all possible scenarios, so that it would not be necessary to think about and decide something during the transaction. Included here is the level of possible losses and possible profits. You can plan the rest conditions and the conditions for the termination of trade when trading is unsuccessful in order to avoid unnecessary losses due to replay. It is necessary to conduct market analysis on the basis of fundamental and technical analysis, analysis of graphic figures, etc. To think over the list of used indicators. It is advisable that they use different price parameters.
Ideally, it is good to have a plan for not only one or several transactions, but also short-term and long-term capital management plans, including withdrawing money from the account, and a time use plan. Your actions should be listed, including for unforeseen situations. For example, turning off the light.
You need to plan and change the volume of trade and the set of tools used, depending on the results of trade. With positive results, this will increase revenue, and with negative results, it will reduce losses. If you think about the withdrawal of money from the account, the size of your commission and other expenses, you can accurately imagine the size of your real income.
Well-known trader Alexander Elder recommends recording all thoughts and desires, emotional reactions that occur during trading for their further analysis, which also helps to identify common mistakes and avoid them in the future.
One of the goals of the trading plan is to identify the typical mistakes of the trader. After the bidding, it is necessary to conduct a full analysis of each transaction, note its strong and weak qualities, draw conclusions. It is necessary to sum up the day, week, month. In the end, it will become clear to you – what you should work on, what additional knowledge you need to get, and this in turn will definitely affect the results of your trading.
Of course, drawing up a trading plan, then keeping and fixing the results – this is very hard work, requiring patience, methodicalness and systematic. It takes a lot of time for all successful traders. But remember – it is this component of the trader’s work that is the key to your future market victories. Only the most disciplined and patient traders succeed in trading. And drawing up a plan, following it closely and constantly analyzing your results is a prerequisite for your future victory.