DEVELOPING YOUR TRADING PLAN | Your Whys and Hows 📝
Updated: Feb 3
To trade the market profitably you need to have a plan.
A set of rules & conditions to rely on each and every time when you are searching for a trading opportunity.
A trading plan of a professional trader is very sophisticated. It consists of various different elements. The precision there is pushed to the limits.
In this article, we will discuss a trading plan of a newbie trader. A trader who just completed a basic educational course and looks for a trading strategy to trade with. The proposed trading plan will be based on very very essential elements that must be included in any trading plan.
💱Know what you trade.
Know exactly what market are you focused on and which trading instruments are on your radar.
For example, being a stock trader, you can not follow all the world stocks, you should narrow down your list and specify that.
⌛Know what time frame you analyze.
There are multiple styles of trading. Trading style can be defined by a trading time frame.
Trading setups taken on a daily time frame are dramatically different from setups spotted on 1-hour time frame.
📈Know exactly the desired market conditions.
There are two main states of a market:
The market can be in a trend and the market can consolidate.
Depending on the state of the market the trader can look for trend-following opportunities; trade the ranging market or look for reversal counter-trading setups.
💸 Know your desired risks.
The max amount of active trading positions,
risk percentage per a single transaction,
max allowable drawdown.
All these numbers must be considered & calculated precisely.
💡Know your entry reasons.
There are thousands of different reasons to open a trading position. However, they can be easily sorted by various categories.
Three universally accepted categories of entry conditions are:
patterns, indicators, fundamental news.
The trader must strictly know in advance the conditions that he is looking for to open a trading position.
🛑Specify your stop placement rules.
Losses are inevitable and must be strictly controlled.
As with the entry reasons, there are a lot of different stop placement techniques.
You must know exactly what do you rely on to place your stop wisely.
3 most common stop placement techniques are:
pip-based, structure-based and indicator-based.
🟢Know your targets.
Opening a trading position and catching a rally the trader must have strict rules for profit-protection/profit-taking.
The two most common ways of profit protection are take profit levels based on fixed levels/pip numbers & trailing stop.
All these elements must be strictly included in your trading plan.
If at least one of them is missing, don't trade.
With time, as you mature, you will have more and more elements & conditions in your trading plan. That will make your trading more precise & consistent.
Do you have a trading plan?