Most traders will never create a trading plan. They can risk more money on the markets than in any other business. However, they will never create a plan as they would if they started a business.
WHAT IS A TRADING PLAN?
A trading plan is a roadmap for what you will do in the markets. It will tell you things like:
- Your strategy
- Criteria for entries
- Stop-los levels
- Account amount per position
- Maximum loss levels
- When to trade
- When to take breaks
- Variables for success or failure
- Trade management rules
- Exit criteria
All this will help you in the heat of the moment to stay true to your plan. It is crucial to work out your plan long before you trade real money. In fact, you’ll want to document your trading plan as part of your exchange book.
Your trading plan should include all relevant data related to your trading day. However, to get this data, you need to know what to track first. Once you’ve determined a subset of operations to track, you can add as many criteria as you want.
CREATING A CONSISTENT TRADING PLAN
To be consistent in the market, you need to have a detailed trading plan and keep it up to date. Discipline is the number one factor that will affect your P/L in the market. You can have all the configurations in the world, but sticking to your trading plan is what will give you consistency.
To help you create your trading plan, we have created a list of 10 items that will be important to include. You can modify it according to your tastes and dislikes. However, make sure you can stay in your lane and stick to this trading plan to be consistent.
- How many operations will you use to evaluate your performance?
- Identify key performance metrics
- What time of day will you trade?
- Define your trading margin
- Identify stocks to trade
- Place your Stop Loss
- When to go out
- How much money can you use per trade?
- When to take breaks
- Up/limit down