So, What a Trading Plan is?
Why You Need a Trading Plan
Easier trading: Since you will plan. You can trade according to your pre-set parameters.
Aimed decisions: Thanks to your trading plan. You should now know when you should take profit and cut losses. This will help you avoid any emotional-making decisions when trading.
Trading discipline: If you stick to the plan. You will know better what works and what doesn’t, evolving as a trader through experience.
You improve: By keeping a record of your trading plans. You track your progress as you grow your trading skills. You can track better your trading progress, and learn from your mistakes.
Seven Steps to Create your Trading Plan:
Your motivational reasons for trading
Writing down your motivational reasons on a trading journey is very important.
As we before mentioned in the article titled “How to Start Trading in 7 Simple Steps”. It’s important to set your goals from the very beginning. Discover not only what you want to trade, but why you want to trade it.
The time you are willing to invest and commit to trading.
Do you think about trading full time? Looking to grow your current retirement account? Or do you want an extra income?
No matter what the reason is, it would help if you thought about how much time and money you are willing to invest in trading. For instance, if you want to make many trades in one day, you will need more time.
It’s also important to spend enough time preparing yourself for trading, including education, practising your strategies, and analyzing the markets.
Mark Down Your Trading goals
Any goal you have must be SMART: Specific, Measurable, Attainable, Relevant, and Time-bound. It also helps to decide what kind of trader you want to be to specify your goals. The four main trading types are:
* Position trading: holding positions for weeks, months, or even years. With the expectation, they will become profitable in the long term.
* Swing trading: holding positions over several days or weeks. To take advantage of medium-term market moves.
* Day trading: opening and closing a small number of trades on the same day. Not holding any positions overnight, eliminating some costs and risks.
* Scalping: placing several trades per day. For a few seconds or minutes, to make small profits that add up to a large amount.
How you feel about risk and your attitude towards it.
Market prices change all the time and as a result. Even the “safest” financial instruments carry out risks.
Through trading, yes, you can make money. You can, yet, also lose money.
So, it all comes down to dedication, knowledge, strategy, and of course, a trustworthy broker.
Like Bernard Baruch once stated: “In trading, it’s not about how much you make but rather how much you don’t lose.”
Meaning, before you make a trade, you need to understand your risk-reward ratio. Proper risk management is more important than making money. Thus, deciding your risk limit is very significant when creating your trading plan.
Your available budget for trading.
A golden trading rule states that you should never risk more than you can afford to lose. It is a fact that trading involves high loss risks that everyone should be aware of when trading.
So, in your trading plan, it gets suggested to underline the amount of money you are willing to invest in. Write down the numbers and do the math. To make sure you can afford the greatest potential loss on every trade.
If you don’t have enough trading capital to start right now, practice trading on a demo account until you do.
Many brokers (EverFX included) offer demo accounts. In which you can practice before actually investing real money in a stock.
Personal risk management rules.
Many details in your trading plan will depend on the market you want to trade. A forex trading plan, for instance, should be different to a stock trading plan.
In this case, your key should be education. When it comes to asset classes and markets, try to learn as much as you can about the one you want to trade.
For example, check out when the market opens and closes, the volatility of the market. And how much you stand to lose or gain per point of movement in the price. If you’re not happy with these factors, you may want to choose a different market.
The world-known businessman and trader Paul Tudor Jones once stated: “The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
At EverFX, we offer our clients a selection of informative content on trading and where to start.
Besides the helpful material. Our team is always available to assist new and existing traders.
You can check out the material provided by EverFX here.
Your steps for record-keeping.
If you want to create a successful trading plan, it gets suggested that you also keep a trading diary. Document all your trades. Track down the technical details such as entry and exit points. Also, make notes on your trading decisions and emotions—those leading to trades, as well as their outcome. The more you write down. The more data you will gather up that will get used to perfect your trading strategy.
- – What is my motivation for trading?
- – What is my time commitment?
- – What are my short, medium, and long-term goals?
- – What is my risk-reward ratio?
- – How much trading capital am I going to set aside?
- – Which markets will I trade?
- – How will I review my trades and performance?
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.