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A trading plan is a tool that you can use to clearly define your trading objectives and help you achieve them. In this module we explain how to construct your personal plan, and how to implement it.
|What is a trading plan?||Why use a trading plan?||Your trading plan|
|Your road mapGeneral trading plan rulesKey trading plan questions||Benefits of a trading planWho needs a trading plan?||Creating a trading plan|
A trading plan is a structure, or a set of guidelines, to define your trading activity. It can be an extremely useful tool to help you focus on planning and executing your trading strategy.
There is no absolute blueprint for the perfect trading plan – every trader is unique, and different styles suit different people – but there are certain universally accepted elements to consider when building your own plan.
You can think of a trading plan as a road map; a route to take you from where you are to where you want to be.
Metaphorically speaking, it is important to have a very clear and honest picture of both of these ‘places’ in mind.
Where are you now?
What sort of trader are you now?
What knowledge and experience do you have?
How much capital do you have to trade with?
Where do you want to be?
What do you want to achieve with your trading?
What sort of timeframe do you have?
What will success look like?
Another way to look at a trading plan is like a business plan. You wouldn’t start a business without a business plan – why would you want to start trading without a trading plan?
While it is true there is no absolute blueprint to constructing the perfect trading plan, there are a few general rules that will be extremely useful in almost all cases.
1. Write it down. You should physically write down – or type – things like your reasons for trading and the key objectives that you hope to achieve. This will help you organise your thoughts, as well as giving your plan solidity.
2. Record your progress. Develop a clear and concise method of recording your trades. It is critical in planning a long-term strategy to be able to view your past and present trades, both from a learning perspective but also to keep track of which markets you are, and have been, exposed to.
3. Control your finances. Money management is a third crucial element of any trading plan. You need to have a plan for managing your investments, especially your exposure to risk.
Here are a few important questions, and some hypothetical answers, to consider when setting up your trading plan:
|What is your motivation for trading?||
To make a sustainable living
|What is your attitude to risk?||
I like taking chances
|How much time can you give to trading?||
It's my full-time job
|What is your level of knowledge?||
I'm very familiar with financial markets and most trading methods
In the next two sections we identify the benefits of having a trading plan, and we offer some tips on creating one for yourself.