How do you draft trading plan, what is needed?
The objectives in trading are simple - make more money than you lose, while making sure you donât risk losing all your money.
So you only need a few easy to understand things -
- an entry set-up
- an entry signal
- a stop-loss level
- a suitable position size
- a rule to close profitable positions and get the profits in the bank
Putting them all together and making all work at the same time is the difficult part. So start with a simple objective entry set-up and entry signal that rely on what is on the price chart, not what you must add to the chart.
Understanding where to get in should help you understand where to set your stop-loss, allowing for volatility.
Make sure no single trade can seriously damage your capital if it fails.
Do not be afraid to close a winning position. Closing removes any further risk and allows you to use the capital on another trade.
7 Likes
What @Tommor said, above, but Iâd add to that understand when you want to trade. The market has rhythms, which ebb and flow, so you need to understand what sort of trader you want to be (eg. if one trader enters via overnight EOD orders of a higher timeframe, and another is sniping off the five minute chart, theyâre both traders but very different and both need to be sitting in front of the screen at different moments). So for both trade setup scanning, trade entry and trade management (trailing Stops etc), you need to understand what time you will have, when you will have it, and factor that into the whole âis this setup for meâ discussion you have for yourself. Most strategies will throw up more setups than one trader can possibly trade, so time management and opportunity to trade and manage that trade need to get a slot on your plan, imho.
ST
3 Likes
its a nice summary
, thanks tommor for your nice pos
t with good topic and information.
1 Like
thanks for nice long detail.
1 Like
Trading plans are vital but so trader development plans are more so.
How are you going to go from being complete novice with total blindspots to competent trader.
I think if newbies worked on their own trader development instead of picking some off the shelf system theyd do better.
That development should include serious time on virtual, a proper understanding of probability, money management, thorough backtesting, recording trades (even when on virtual) trading micro lots before larger size, day trading on demo to increase speed of pattern recognition, basic meditation, a few choice technical tools (not many), an understanding of sentiment indicators, learning to develop a trading plan.
If you have ever watched the karate kid movies - the wax on wax off or jacket on jacket off scene you see a great teacher in action.
He taught his student muscle memory, knowing that it would be better than just starting to fight.
All this despite his students protests.
The lesson is apt for newbies, develop the skill sets first and trade only when your mind has already reached the level of competent trader - even though you havent yet traded seriously.
1 Like
I like these posts however, no one yet has mentioned a trading constitution. A trading plan is a rule based list of action items, a constitution is a trading version of a declaration, a proclamation of trading doâs, trading donâts, things you represent, things you abhor. A trading constitution will change your mindset if itâs composed correctly.
I will give to my fellow man and my neighbor.
As a representative of {your company}, I will be grateful for every winning transaction and learn from any losing transaction. You get the idea.
Reno
Definitely; and following others or depending on others trading system is not a proper way of leaning!
I thought I had heard it all by now but trading constitution?! Seriously? My suggestion to newbies is that you consider not wasting time creating a trading plan and certainly avoid even remotely contemplating creating a trading constitution.
Instead, my recommendation is that you make a list, in a spreadsheet, of all the learning activities that you can think of in the span of 30 minutes. Then prioritize them according to which activity will affect your bottom line the quickest. Make a note of dependent activities; for example, âlearn to control my fear of losingâ is dependent upon âlearn to achieve a high win rateâ and âlearn to achieve a high R:Râ. This is because once you increase your win rate to say 70% and your average R:R to 1:3, then automatically, your fear of losing will be greatly diminished. Make sure to complete the dependent items before taking up the item that has the dependencies. You may add items to your list as you think of them later but donât waste time trying to get a âcompleteâ list before moving on.
Pick the top most item and concentrate your effort on learning as much as you can about that item and implementing it in your daily trading routine until you become proficient at it (you may not become a master at it just yet). Then move on to the next item. Give yourself a time limit to gain proficiency in each item. At the end of the time limit move on to the next item whether or not you have gained proficiency. This might seem like a long process to you but in fact you will make improvements much faster by following the above steps rather than wandering aimlessly and creating useless trading plans.
Keep a trading journal with screen shots of your annotated analysis and execution charts. Make copious notes before, during and after your trades. These notes should tell you what your thought process was when identifying the trade, how you picked the entry, SL, TP points, exits, how you managed your trades and how you thought you performed after the trade was closed, what you did well and what should you improve upon. If you did not trade on a particular day but merely watched the markets then make notes on what you observed. Revisit these journal entries every weekend for the past weekâs trading. Keep a separate journal in which you note down the key points each week, if any, that you learned while revisiting your trades for the week. Every week look over all the previous weeksâ key learning points.
Do the above exercises for 6 months and be amazed as you improve by leaps and bounds. In 6 months time your trading plan will be embedded in your head and you wonât need to write it down. Set a goal to become a profitable trader within 6 months. Once youâve completed all items revisit your list and pick out items that you would like to gain mastery over and get on with it.
4 Likes
In other words - deliberate practice.
Agreed.
1 Like
Quad, you are experienced trader so for you everything looks easy. But, can you remember time when you were beginner? It is better for newbies to have a trading plan at least to take time to think a bit about market and potential moves, exit strategies, then just blindly to enter into position
HI Dwight. If you believe that creating a trading plan will help you then by all means do so. Donât let me or anyone else stop you from doing what you believe you should be doing in order to further your trading endeavors.
What I was trying to say with my post above is that, as a beginner, you probably donât know enough as yet to be able to create an effective trading plan. Itâs like attempting to create a business plan for a services or goods business when you donât understand the industry or the domain, the major players, your competitors, the economic factors affecting your markets etc. Sure you can create a business plan but will it be worth anything? Will it serve as a guide to creating a profitable business? Probably not. You will need to do some research and figure out the above mentioned points and a whole lot more in order to lay down a plan that you can actually follow.
The same applies to trading. As a beginner, you donât know enough to create a worthwhile trading plan. Thatâs why I suggest that you invest time to learn as much as you can about trading before you venture forth to creating a trading plan. And guess what ⌠by the time youâre ready to create your trading plan you will likely find that you donât need a written plan. You will have all that information etched in your mind. It accumulates as you learn.
Having said that, we all learn differently. So, do build a trading plan if want to. There are no hard and fast rules associated with such activities. 
Wishing you great success!
1 Like
When I draft a trading plan, I consider a few factors like :
⢠Define my ultimate goals
⢠Whatâs the risk-reward ratio?
⢠And how much time can I commit to trading.