You may be wondering “why have a trading plan” if you are new to trading the financial markets or just don’t think that it’s all that important in having one.
Having a trading plan will become one of your greatest assets to help you become a successful profitable trader for the long term. It will guide you in making optimal trading decisions based on your trading goals and objectives.
Your trading plan should be designed around the nature of your “trading personality” so that you can trade the financial markets in a way that feels most naturally to you.
You can greatly increase your chances of being a consistent and profitable trader by following your trading plan with discipline. Having one will also help to keep your trading emotions under control as well as to trade with confidence.
In essence, your trading plan will serve as your own personalized trading navigation system for choosing just the right trades to place that are highly optimized to make you some potentially big profits.
Creating A Trading Plan Will Help To Answer Such Questions As
- How much time do you have to devote to trading?
- What kind of trading style will best fit your trading personality?
Do you like the energy and excitement of being in front of your computer all day long during trading hours watching the price action on a chart just waiting to pounce on a trade? Or, do you want to be a longer term trader having more time for your trade to play out to possibly make even bigger profits while trading less frequent, or trading somewhere in between these two time frames?
- What kind of financial instruments are you interested in trading?
- Time frame for making your profit targets (daily, weekly, monthly or something else)
- How much loss are you willing to accept on each trade before having to close it out (risk management)
- What kind of trading research interests you such as technical analysis or fundamental analysis (or a combination of)
A Trading Plan Should Be Comprehensive And Well Organized
Your trading plan should cover all the critical areas of trading including:
- Type of trading personality
- Trading style you feel most comfortable with (day trading, swing trading, trend trading or position trading)
- Financial instruments to trade (stocks, etfs and options)
- Type of trading research interested in doing
- Trading goals and objectives
- Trading strengths and weaknesses
- Strategies for selecting high probability winning trades
- Profit taking & risk management rules
In addition, your trading plan could also include footnotes to it such as times when you should not be trading like after any type of bad situation (like after having an argument) or not feeling well.
Benefits Of Having A Trading Plan
- Being confident of when to enter and exit trades (sticking to the trade set-up)
- Knowing how much risk to accept before placing a trade (risk tolerance rules)
- Determining which financial instruments are best suited for you to trade
- Deciding how active you want to be as a trader in trading the financial markets
- Feeling self-assured that you have done everything right (even if the trade ultimately doesn’t work out)
- Eliminating unnecessary second guessing and self-doubting
- Gaining a trading style that feels very natural and comfortable
- Enabling you to trade with self-confidence and consistency
- Helping you to be more disciplined with sticking to trading decisions
- Reinforcing reasons why you should (or should not) be placing a trade in the first place
- Greatly reducing the emotional roller coaster of fear, greed and anxiety
To help you successfully develop a personalized and comprehensive trading plan, learning about another important area of trading – psychology of trading – can be extremely beneficial in doing so.
Last Words About Your Greatest Trading Asset
Having a trading plan that is comprehensive and well thought out will greatly help you to become a successful and profitable trader for the long-term by helping you to trade with confidence, consistency and discipline.
Having one will also help to ensure that you “stay the course” of following your trading goals and objectives enshrined in your trading plan – which is the recipe for trading success!
This is why your trading plan will become one of your greatest assets!
