Trading without a trading plan: a plan for disaster

I do not care how amazing your trading strategy is. Without a trading plan, you are going to war without a bulletproof vest. Yes, you may get a few lucky shots in, but all that will stop you is that one stray bullet that will mess up your flow. The same goes with trading, if you enter the charts without a plan, then all it will take is that one unlucky trade that will mess up your profits. You need a plan, and today we will discuss why a trading plan is so important and how to make one.

Why do you need a trading plan

The short answer is that in a limitless murky world like the trading environment where you can open and close trades all your like, you need a sure guide that will lead to profits and LIMIT YOUR LOSSES. I place an emphasis is limiting losses because that will be the biggest factor that will determine your success. What causes losses then？ :

1) opening positions that are leveraged too high

2) placing trades without a calculated stop loss

3) over trading

The trading place prevents all of that by placing rules that take away the thinking process in the middle of your trades and have you operate like a robot in your best interests. With a trading plan, you set limits on how much you will lose or win in a day so you already know the maximum that you will lose prematurely you can already set your losses low and be prepared for a negative out come.

You will also place a daily profit target with the plan that will limit the number of trades you open in a day. One of the reasons people do not make a profit is because they do not know when to leave the market. Even when they have made profits they insist on trading to get more and bam you lose your profits and you start revenge trading and losing profits on bad trades you take just to recover what you already have. With a profit target, you leave the charts with your profits and cash out. You take from the market whilst the taking is good.

How do create a trading plan

You need a ask yourself a bunch of questions and write down the answers as a set of rules. The questions are

1) What are the rules of my trading strategy

2) what time of the day do I prefer to trade

3) what much am I prepared to lose in a single trade

4) how much am I prepared to lose in a single day/week

5) how much can I make in a day that I consider to be enough for my risk appetite

The answers to these five questions will aid you to create the basis of your trading plan. As you write it down if you want to think of other additional rules that may be specific to your trading strategy and risk appetite. You may place a rule like “ I will open a trade only when I see a morning star candle stick pattern” or “once I make $100 today I stop opening new trades l, secure profits, and manage the trades that are already opened”. The basic idea here is to keep a general guide that will keep you honest and repeat the excellent habits that keep you far away from the reds and deep in the blues.