5 Ways to Create a Rock Solid Trading Plan
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These 5 tips will help you formulate and maintain a foolproof rock solid trading plan
From education to live trading, there’s one bit of advice we’d bet you’ve heard: “Stick to your trading plan.” At every step along with your trading career, your trading plan is your best guide and partner. It serves as a beacon when you may feel lost and a comforting confirmation when times are good. But any trading does not equal a good, solid trading plan. A plan that is hastily, sloppily, carelessly, or lazily constructed will not provide you with the stability and guidance you need to make it in the market. Only a well thought out, carefully and expertly crafted plan will suffice.
So how do you make sure your plan meets all your needs?
Test it, test it, and Test it Some More
Before you implement a trading plan, it is essential that you test it before running it in a live scenario. It doesn’t matter how well you learned it or how well you think it will perform until you test the plan in a real-world scenario, you should not move forward with it.
Imagine this for a moment – you learn a new method and immediately implement the strategy. It looks so good on paper that it just has to work, right? Wrong. After a month or so you’ve lost 15% of your account and in a fit of rage, you toss out the trading plan and hastily substitute in a new one. The same thing repeats itself and you’re now down 30% and stuck in a loop of failure.
This could have been resolved had you just tested the plan to make sure it worked.
In addition to determining whether it’s sound or not, testing a trading plan can let you know if your strategy has a positive expectancy, can give you the confidence to execute your trades, and can show you an estimation of the expected results.
Craft Your Plan According to Your Life and Behavior
As we said before, just because a trading plan looks good on paper doesn’t mean it will work for you.
For example, if you like to trade at night but the particular trading plan you’ve implemented is better suited for daytime trading, it won’t work.
Instead of finding a rock solid trading plan and making yourself adjust to its parameters, build a plan that serves and is focused around you. Make sure the timeframe focus is in line with your needs, as well as the risk you’re willing to take, and your trading setup.
Make a Comprehensive Whole Plan
This sounds a bit silly, doesn’t it? Who would build an incomplete trading plan? Well, the answer is more people than you’d expect.
The reason why so many people build incomplete trading plans is that there are so many different, unforeseen situations and events to plan for. When you create your trading plan, you need to tirelessly consider all of the possible variations the market might throw at you.
Once you’ve accounted for all the unknowns, come up with action items in order to respond and react to them as quickly as possible should they come up. Let your mind wander and don’t be afraid to imagine even the most unlikely of scenarios.
Of course, it’s not possible to account for every single possibility. The goal here is to get as close as possible in order to protect yourself from as many curveballs the market may throw at you.
Allow for Evolution
The market is constantly changing and so are you. Therefore, your trading plan needs to be able to adjust to these changes. Don’t sit back and think you’re working is done when you finally put together your plan.
Instead, constantly adjust it and be willing and able to make changes as they arise. A static trading plan might work in the beginning but as conditions change, it will need to account in order to stay relevant.
The best trading plans are ones that have been around for a while and which have gone through several market periods and tweaks. As you mature as a trader, take your trading plan with you. You accumulate new knowledge and skills, so should it.
If you add or subtract anything, just remember to test it and confirm that it still works.
Your Trading Plan Should Become Second Nature
When we repeat an action every day, that action gradually becomes so ingrained in our brains that we can subconsciously engage in it.
Work on your trading plan and learn it every day as if it’s another important part of your routine. Developing good habits will only come with time and training. A lot of time and training.
If you wake up one morning and don’t feel like devoting the necessary work to your trading plan, you better find something to motivate you.
Without a good, well worked out and solid trading plan, the market is likely to eat you up and spit you out. In times of trouble and in times of prosperity, your trading plan will keep you afloat and able to navigate the constantly changing dynamics of the market. So take your time, test, tweak, and most importantly, believe in your trading plan.
Photo by Zoe Holling
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