Skip to main content

Importance of Trading Plan

Successful traders have a plan to win. By carefully putting the odds in their favor for the long term, successful traders will overtake gamblers who rely on random trades and a prayer.

If you want to win in any area of life, you must be disciplined, study, and do the hard work. There are no short cuts, and especially not in trading. You need to enter the markets prepared and with a detailed plan to enable success. Here are the components of a trading plan:

The Components of a trading plan:

1. Entering a trade: You must know clearly at what price you plan to enter your trade. Will it be a break through resistance, a bounce off support, or a specific price, or based on indicators? You need to be specific.

1. Exiting a trade: At what level will you know you are wrong? Loss of support, a price level, a trailing stop, or a stop loss? Know where you are getting out before you get in.

3. Stop placement: You must either have a mental stop, a stop loss entered, a time stop alone, or a time stop with an indicator.

4. Position sizing: You determine how much you are willing to risk on any one trade before you decide how many shares to trade. How much you can risk will determine how much you can buy, based on the equities price and volatility.

5. Money management parameters: Never risk more than 1% of your total capital on any one trade. (2% maximum for aggressive traders who can handle bigger drawdowns.)

6. What to trade: Trade things you are comfortable with. Swing trading range bound stocks, trend trading growth stocks, or trend following commodities or currencies. Trade what you know.

7. Trading time frames: Are you a day trader, position trader, swing trader, or long term trend follower? If you are a long term trend follower, don’t get shaken out of a position in the first day by taking profits or getting scared. Know your holding period and adjust your plan accordingly.

8. Backtesting: Do not trade any method until you reviewed charts over a few years to see how you would have done. Alternatively, utilize backtesting software to analyze historical data for your system. You need to begin trading knowing you have an edge.

9. Performance review: Keep a detailed record of your wins and losses. You need to be sure that your method is working in real trading. Review this after every 20 trades. Also, if you had any issues with discipline, then make notes, learn from your mistakes, and the make necessary adjustments.

10. Risk vs. Reward: Enter high probability trades where you are risking 1% to make 3% or trade a system that wins big in the long term through trend following.

Regardless of how you trade, every trader must have a trading plan. 

Comments

Popular posts from this blog

BJP Falls short of Majority (5th June 2024)

1.U.S Markets closed higher Yesterday  2. U.S Futures are trading higher now. 3. Asian markets are higher. 4. Global cues are positive currently. 5. U.S Markets have made a short term bottom and now have reversed. 6. Gift Nifty is up more than 100 Points. 7. Yesterday was a big surprise to everyone. 8. Contrary to the exit Poll , things have been changed dramatically.  9. Exit Polls indicated a cakewalk win for the BJP. 10. Reality of the Ground level was entirely different. 11. There is BJP Govt forming but with a Coilition Govt. 12. Coilition Govt changes many aspects. 13. Firstly , the Govt cannot take decisions on its own. 14. It has to get approval of other parties as well. 15. This would hamper the growth prospects and future plans. 16. Last 10 years , the Government had come with a simple majority. 17. They worked freely. 18. This is a way good for democracy 19. One Govt dominating is not good for the Country , now everyone has to work for welfare of Country. 20. Com

Global Shock !! (6th August 24)

1. U.S Markets closed lower YESTERDAY.  2. All the indices closed lower. 3. Right now , Dow Futures are higher. 4. Asian Markets are all higher. 5. All the Global Markets are Positive right now. 6. Last 3 days , there has been a flash crash in all the Global Markets. 7. There was a Mayhem specially in the Japanese Markets. 8. Japan had hiked the interest rate after 15 long years due to which their currency depreciated and it caused a 20,% fall in Japanese markets. 9. There are warnings of U.S recession post the Jobs data report. 10. Israel - Iran war has been taken escalation.  11. All these news have spooked the Global Markets.  12. U.S VIX jumped 400% in last 4 trading sessions. 13. India VIX jumped 50% Yesterday.  14. Although it doesn't impact us at all  , it's the nature of markets to react on news. 15. Right now , Nikkei the Japanese index has opened positive  16. 24000-23850 is a very strong and final support. 17. I expect yesterday's low to the low for A

Global Markets Mayhem !! (5th Aug 24)

1. U.S Markets closed lower on Friday. 2. All the indices closed lower. 3. Right now , Dow Futures are lower. 4. Asian Markets are all lower. 5. All the Global Markets are Negative today. 6. From Thursday to Monday Morning , U.S Markets have crashed more than 6%. 7. This is a terrible & an Alarming fall. 8. U.S VIX jumped another more than 20% on Friday. 9. This is the fearful data point. 10. Reason for all this is because of Geopolitical conflicts. 11. Iran - Israel tensions. 12. Japan currency depreciation etc. 13. All this is leading to a flash crash in the Markets. 14. 24500-24400 is a crutial support for nifty. 15. We are likely to open closer to these levels as per Gift Nifty. 16. First hour is the key today. 17. If we do not break the first hour low throughout the day then we might expect a reversal. 18. A further correction may be expected if the first hour low gets taken out. 19. Nifty might trade between 24300 to 24700 today. 20.  stockmarketadvisory.in