With an ever-changing market condition, How to build your successful trading plan a good trading plan is what can make the difference between a struggling trader and a successful one. And it is vital to implement it early to achieve trading success. It gives a time frame of work and can avoid any trader losing too much of their capital. It could be even more effective if associated with a trading journal. A journal will not just help you to keep track of your trades. It will also help you to revaluate or readjust your trading plan.
In reality, a trading plan alone cannot protect us from losses. We are dealing with high leverage products and also, very volatile markets nowadays. Opportunities are great, but exposure to losses is too. It is a psychological journey. So how are successful traders doing it in the long run?
How successful professional traders think
Well, they think ahead
. Have a flexible mind
and are ready to adapt themselves to changes.
They make sure they professionally do their homework. And make themselves aware of anything that can affect the market. All of this will help you to make the right investment decisions
A professional trader will consider what is going on in the news, how holidays affect the market, the lack of liquidity, and events such as changes to interest rates, non-farm payroll figures, Fed decisions, etc. As I said before, a trader needs a plan – a proper strategy
Gambling is NOT an option.
Trading any market as you bet on a horse may get some short-term results. Saying that, in the medium to long term, it will only ever lead to losses. A successful trader will also consider the costs of a trade
, which include the spread and the commission. Some traders have good trading results. But, with the excessive charges, they are merely breaking even or even losing money. Never forget that you are running a business now!
The liquidity of a market is Key.
It will play an essential role in your choice of trading a market.
During Bank Holidays, for instance, the volume traded is low. And market movements are minimal. Another thing to keep in mind is the Average true range
which will give you an excellent idea of how you can expect the market to move during the day.
What should you include in your trading plan?
We are all different, and writing
a trading plan should be our journey. But it is also necessary to have some guidance. So let’s go through what is the most important to know and do.
Preparing for the trading day
Professional traders should keep in mind the BoyScout Motto: Always be prepared
. They need to make sure that they are thoroughly ready
for the working day ahead. Therefore, they need to be 100% certain that they are fit to trade and make coherent decisions
. Money is at stake – sometimes large sums – so make sure you are ready for action
. A simple way to do this is to have a personal checklist
Did I drink too much alcohol last night?
Am I feeling unwell? May be suffering from a bad cold or hay fever?
Am I divorcing at the moment? Is it a good idea to carry on trading while my mind is elsewhere?
These are just a few examples, and there could, of course, be many more. We are all different, so I encourage you to have your checklist.
The key things to remember are that you should feel fit and also, healthy
and have a clear mind
with nothing to distract you during the trading day.
Entering a trade
Furthermore, there is no place for something unplanned.
The Spur-of-the-moment choice can be a big mistake.
On the odd occasion, they can be successful
, but on the whole, they can prove to be a disaster
. An appropriate motto is: Act in haste, repent at leisure
Before entering a trade, you should ask yourself exactly what you think you should be trading – and precisely why. You need to use Technical or Fundamental Analysis
or a mix of the two before entering your trade. The amount of capital
you have at your disposal will make all the difference to your trading results. They say it takes money to make money
. And that is true. You will find it hard to make a good living if you are trading with petty cash. Now, of course, not everyone has the luxury of having a large sum of capital behind them. And it is a must to be cautious with your trading decisions
to safeguard the trading capital under your control. Patience is needed
. Building up a trading capital slowly but surely
is a far better route than losing the lot by lunchtime.
Managing a trade
Now that we are in a trade, we need to manage
it. What should we take into consideration? When it comes to trade management, analysis needs to go hand-in-hand with good discipline.
As I said earlier, you must put aside your emotions when trading. You need a logical and rational approach
and should consider all different factors.
Success doesn’t happen overnight.
Don’t bet the farm – or your house – on a single trade based on some gut feeling. Be patient and consistent
. The most important is for you to be focused and disciplined.
Without discipline, prepare yourself for failure.
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Exiting a trade
For me, it is even more important than being able to have a good entry because being capable of identifying a good exit level
will enable you to build up your trading account
. We can do it in different ways
: By being stopped out in profit if we use a trailing stop; by simply hitting the target; by exiting a trade if we spot a change of market conditions; or just by placing a time stop if our trading platform allows it.
What type of trader are you?
As part of your trading plan, you should also decide what type of trader you are? You can choose to be a position trader and also, hold positions in an asset for several weeks, months, or years expecting to make a profit in the long term. A Swing trader, so you keep your trades in the medium term over several days or weeks. A day trader that opens a lot of trading positions during the day but that not hold them to avoid overnight costs and risk of market gaps. Or a scalper who places several numbers of Trades for only a few seconds or minutes. You also need to know the time you can commit to trading, your risk-reward ratio, and which markets to trade.
Your trading plan
|What are your trading risks?
(the risk-reward ratio)
|What are your entry rules?
|What are your exit rules?
|How do you manage the trade?
|Keep a trading journal
(Were you self-disciplined? What did you learn? How could you improve?)
To finish, I want to stress that trading is a marathon and not a sprint. Slow and steady
wins the race. Similarly, it is possible to become a successful trader. But it requires hard work, consistency, patience, discipline, and also, capital. You will also need the help of other traders who have made a success of their careers. I know that all of you have ambitions to become successful traders, and these people can provide you with invaluable insights and tips. They will be able to guide you – mentor you – and help
You develop as a trader. They were once exactly where you are, and most of them will be only too willing to give you the benefit of their experience. There is, of course, a vast amount of online information about trading to help you through your journey. Some of it is good, and some are not so good. Continuing to educate yourself is very important, but having the right people and tools at hand to achieve your goals is even more precious. I have one final important thing to tell you to remember when
it comes to trading. And that is: You are what you do, and not what you say!
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