Uh oh! You’ve learned so much and have come so far in your education,
and yet you're still haven't graduated high school. No, you’re not dumb,
BUT you didn’t have a trading plan.
Our point is that you can fill your mind with plenty of information, but
without a good trading plan and the discipline to stick to it, you will
NEVER be profitable.
Think of your trading plan as your map to success. It will be a constant
reminder of how you will make money in this market. Of course it’s not
required, and if you can make your living by trading without a plan, we
will bow down and hail you as the Market Zeus of the Forex.
So you CAN trade without a plan if you want, but before you make that
decision, let us give you a few reasons WHY you should have one.
Why Have a Trading Plan?
Reason 1: It keeps you in the right direction
Consistency is very important to have in your trading routine because it
allows you to truly measure how successful you are as a trader. If you
have a sound trading system but always break your rules, how can you
ever really know how good your system really is? Your trading plan will
keep you on target. Read it every day and stick to it.
Reason 2: Trading is a business and successful businesses ALWAYS have plans
I have never seen a successful business not start out with a plan. Do
you honestly think Walmart was just created on a whim and then magically
became successful? Or what about McDonalds? I’m sure almost anyone
can make a better hamburger than McDonalds, but the difference between
them and the individual is that they have a successful business plan
that guides them to success.
In the same way, you can relate the McDonald’s story to your trading
career. Whether it’s by luck or experience, everyone can make money in
the forex. However, the difference between a losing trader and a
successful trader is the PLAN. If you have a good trading plan and you
are disciplined enough to stick to it, you will be successful!
What Should be in Your Trading Plan?
Trading plans can be as simple or complex as you want it, but the most
important thing is that you actually HAVE a plan and you FOLLOW the
plan. With that said, here are some of the essentials that every trading
plan should have.
1. A trading system
This is the heart of your trading plan. This system should be one that
you have thoroughly backtested, and have traded for at least two months
on a demo account.
Include all the necessary information about your system such as: time
frames you use, criteria for entries and exits, how much you risk during
each trade, which currency pair(s) you trade and how many lots you
trade.
Example: I am an intraday trader and I trade off of the 10 minute
charts. I enter when there is a moving average crossover and all my
indicators support the direction. I only trade the EUR/USD and I risk no
more than 2% of my account on each trade. For now, I trade 5 mini lots
and will increase my lot size according to my 2% money management rules.
2. Your trading routine
This is a crucial part of your plan because it will determine three very
important things: when you will analyze the market and plan your
trades, when you will actually watch the market to take trades, and when
you will evaluate your actions during your trading day.
3. Your mindset
Ask any trader out there and they will all tell you that one of the
hardest things to do when trading is to take out your emotions from it.
This section of your trading plan will describe what frame of mind you
will be in when you are trading.
Example:
* I will see what is on the charts and not what I want to see.
* No matter how biased I am towards a direction, I will make
sure to trade only what my eyes see and not what my feelings tell me.
* I will not get “revenge” on the market if I lose on a trade.
* I will not beat myself up if I make a losing trade. Instead I will take it as a learning experience and move on.
4. Your weaknesses
Yes, we all have our weaknesses. We just don’t like talking about them.
But ask yourself this, “How will you ever get better, if you don’t admit
to what you need to work on?” This section will be an objective way to
keep track of things that you need to work on in order to become a
better trader.
Example:
* I tend to overtrade. Whenever I lose on a position, I get upset and immediately try to get “revenge” on the market.
* I tend to exit early on trades.
* I don’t stick to the rules of my system every time
* I don’t stick to my money management rules every time
Now you know why you should have a trading plan. Let's find out what makes up a trading plan...
5. Your goals
“To make a lot of money” is not a good goal. Sit down and really think
about what you want to accomplish as a trader. Do you want to trade for a
living? How much return can you realistically expect from trading based
on your knowledge and experience? Your goals don’t even have to be
about making money. Maybe you would like to be more disciplined or gain
more confidence. These goals can be personal. What do YOU want to get
out of this? Use these goals as your motivation when times get tough.
These goals will be your vision, and you must always keep your eyes on
the prize!
6. Your trading journal
This will be a valuable tool to helping you become a better trader. Make
sure you log all your trades and why you took them. Later down the road
you can look back and evaluate your trades and see how you are
progressing. I’ve looked back at my trade journal and have seen just how
much I’ve grown as a trader. My first entries were very basic and as
I’ve progressed, my trades make more sense to me now. I’ve gained a lot
of confidence throughout my career and by looking back at my trades,
I’ve really been able to evaluate myself and see if I am getting closer
to my goals. This tool will help you tremendously in the long run, so
take a few minutes each day and log your trades. You’ll be happy you
did!
Your trading plan will be your trading “bible”.
Read it everyday and stick to it.
You can have all the trading tools in the world, but if you don’t have a
plan on how you will use them, you will never be successful.
Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!
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