The intent of this article is to share my thoughts on the need for a comprehensive trading plan for all traders - new and seasoned alike.
The Need for A Trading Plan.
So they say, plan your trade and trade your plan, yet how many really do that or even have a plan to begin with? I know I don’t have one when I was trading in my first year, not until I met babypips and subsequently meetpips.
It is in meetpips, I learn how important having a plan is. It is with a plan, I know where I am going. Without one, I am just like a sailor sailing in the vast ocean without having a direction and not even a compass to direct me coz ain’t no point in having a compass if you do not know where you are going. All Praises to GOD for leading me here and thanks to meetpips owner for this wonderful blog site.
So when we speak of a trading plan, it must have three components - trader profile, risk management, and trading system. Just like what we have here in meetpips. Let’s go through each of them one by one and try to see why we need them.
Trader’s Profile
Trader’s profile basically summarize our whole psychology for this job/career/endeavor whatever we want to call it. We must know why we want to be a trader, what motive that would drive our actions to become a successful one. What do we intend to achieve and how much we are willing to commit to be a successful trader?
We must have strong reasons, which usually emotional, to succeed. Because trading, just like any other profession, requires knowledge, skills and good attitude, which means we must be willing to commit and invest our time and money into it to succeed. There will be times, when the going get rough and we had a losing streak. So having a strong reason ensure us the will to carry on despite the ugly looking account performance.
Risk Management
After a while trading, carrying on despite the ugly looking account performance, maybe in the first and second year, you will realize you can’t keep going on like this. Making money, losing money, losing more than you make is going to put you bankrupt eventually. This is when you learn, cutting the losses short and letting the profits run is necessary for your long term survival.
There will always be a risk anywhere and trading is no different. It is so much more in “how much you make when you are right, and how much you lose when you are wrong” in your trade orders direction.
This is when we have to decide on our risk limit. How much we are willing to lose/risk at any given time? If say 10%, then how are we going to allocate that? all in one trade? or maybe 5 trades with 2% each?
What we must understand is that trading is a business and as in any business, we sell more than we buy to earn profits. So if we risk/buy at 2% of our capital, then we should expect more than 2% return/profits to make sure the business is profitable; because there will be days that nobody is buying, our goods going bad, and we lost our capital. That is why it is important to have a more than 1:1 Risk/Reward ratio in a trade.
Trading System
Finally, having a trading system that is compatible with our thought process that would make it easy for us to decide whether to buy, sell, or hold. Though these days, there are so many promotion and ads in a perfect system, bla, bla, bla; fact of the matter is, a trading system is nothing more than our tool to make a decision to buy/sell/hold.
Of Course, our trading system depicts our thought process, and once we found one that is compatible to us, we stick to it. The problem is, most people who have not found one are looking a “perfect no loss” system. There is no such thing as “perfect no loss” system for you, but there is a perfect system for you. That system is the one that your thought process are compatible with.
This is the part where most traders spend their time on in their journey to become a successful trader. We can cut this short by simply following a signal like Autochartist, Trading Central, IFR Markets, or even the tips here given by bigpippin and many others that have proven performance. As long as we control our risk in taking our orders, I guarantee that you will be profitable and successful.
Summary
So really then, we are left with taking care of component one and two - our psychology and our risk control when we have outsourced component three. So know yourselves, control your risk and start writing your trading plan here at meetpips. I guarantee you that you will be on the highway to success in a more enjoyable mood.
Plan Our Trade, Trade Our Plan
GOD Speeds, Have A Great Weekend
Halal Trades Network