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How to Create a Trading Plan

How to Create a Trading Plan

4 Keys to Creating a Systematic and Achievable Trading Plan

It’s one thing writing an article about why trading according to a plan is the only way to go. But without giving the traders the tools of how to create a trading plan, success may not be as reachable as your true potential could be. Below is a 4 part plan to refer to when beginning to strategize.

Part 1 – Methodology

This is the framework of your trading plan. Without thoroughly making these decisions, your plan may not be fluid. But first things first – this plan may be on your laptop/tablet or where ever you prefer, still, have a place/folder/book to make notes, keep a track of ideas, log your movements.

  1. The factors to be considered and decided upon
    • Which type of trading system you would like to work within (one best suited for you)
    • Set your trading parameters.
    • What is your timeframe?
    • Will you be a full time or part-time trader?
  2. Decide where your stop losses will be placed. Are you going to use indicators? If so, how they will be incorporated into your strategy?
    • Keep it simple and easy. Do not overthink.
    • Imagine possible scenarios: “if x happens, I will do y”.
    • Know exactly or at least have an idea of what you would do when reaching certain signals.
    • Log these ideas, movements that were successful, ones that were not. It’s good to keep referring back to.

Part 2 – Money Management

Money management is the most important part of the plan. This where you should understand how “risk of ruin” relates to your trading. 

When calculating your risk of ruin, any number above zero is too high. That means you will eventually blow up your account in a matter of days, weeks or months.

Considerations and to-do list:

  • Determine your position sizing in accordance with your stop-loss plan. Write it down and stick to it.
  • How much capital will you begin each trade with?
  • How much capital are you willing to risk?
  • What amount are you willing to lose?
  • Plan for your profits – even if you have not earned yet, think about how much you will take out and when you will take it?

If you find yourself doubling down and burning through your capital, you should take a step back because it’s possible you’ve crossed over the line into gambling. Throwing money at the market without a clear goal nor a coherent plan is not trading.

Part 3 – Psychology

Psychology is the journaling section. Journaling is a mental support system, gives way to ground yourself and your thoughts. It helps to place you in a mindful state to clear clutter, bring clarity and problem solve. Take advantage of your free time to journal or keep a side note pad to jot down ideas or reminders during a busy day.

In addition to profit and loss ideas, consider these points:

  • Make mental notes about how you feel currently?
  • How did you feel during a certain situation?
  • What you did do well at?
  • What kind of mistakes did you make?
  • What can you improve on?

Focus on what you can control, not what you can’t control. There’s no one else to keep tabs on you. You’re working solo and need to discipline and control yourself.

Make this introspection part of your daily routine. If you want to be great, you’ll need to work on it all the time.

Part 4 – Tools

Lastly, which tools will you be going to use in order to facilitate your trades?

  • If your budget permits change to a computer dedicated to trading – allow it to be clutter-free of unnecessary files.
  • Have an alternate power source.
  • Invest in the best internet service, and portable wifi in case your cuts you off.
  • Have a phone ready to contact a broker there and then. (A spare phone may come in handy too)

My Personal Touch

This guide that I have put together is merely to give you a framework for what has been tried, tested and proven. I have tweaked it to suit my needs and feel that those changes have positively impacted my trading. Add your own twist once you have figured out your comfortable trading ways.

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