Another article about a trading plan on the internet? Yes, because it’s a really important subject. You see, everyone knows they should have the knowledge, but few traders actually have one. Guess what? The ones that have a written-down plan outperform the ones that don’t have one. But, how to make a trading plan, and what are the actual benefits? Let’s dive into it.
The benefits of having a trading plan
Before you actually make one, you want to know why you should make one. You first want to know the benefits. Well, these are the benefits:
- Easier to backtest a strategy & gather data
- Easier to execute a strategy in the live markets
- More consistency
- Fewer mistakes
- More returns
These are just a few benefits of having a written-down trading plan. Whether you trade forex, commodities, indices or another market, a plan is a must. But what goes into it?
How to build your own trading plan?
Alright, let’s dive deep into this subject. A trading plan consists of everything you do as a trader, such as:
- Entry setup
- Target
- Stoploss
- Risk management
- Trade management
- Statistics
- Broker information
- Step by step checklist
- Journalling routine
- And more
Basically, you want a trading plan that tells you from A to Z what you need to do. From the moment you open your charts to the moment your trade closes. Everything should be covered: where do you enter, where does the stop-go, where does the target go? Everything has to be in it. Why? Because you don’t want to leave any grey areas. Grey areas cause confusion. Grey areas cause mistakes. The fewer mistakes you can make, the more money you will make.
As you can see, I also wrote down a journaling routine. This is another thing everyone knows they should be doing but no one actually does this. Why? Because they think it’s boring. Newsflash: the ones that have a journal are the ones that make the money in this game.
The boring stuff makes money. So, get used to the boring stuff and make it a habit.
Taking action
Alright, so we have covered a few things. But, reading about a trading plan isn’t going to help. You have to take action. It’s the same thing when you read about how to lift weights: you will only get the benefits when you actually go and lift weights.
So, what’s next?
- Build your trading plan from A to Z
- Build a trading journal
- Gather data and improve your plan over time
You want to learn as much as possible from every trade that you take. Having a journal makes sure you can. Having a trading plan makes sure you keep taking similar traders. If that trade provides you with an edge, all you have to do is repeat it over time and make money.
Pay attention:
Many people will tell you it’s okay to have a plan in your head. However, when you are in a trade and emotions are high, a plan in your head is absolutely useless. I know it sounds boring, but you have to write it down to get the most out of your trading plan. Just try it out, you have nothing to lose. After some time, you will build the habit to follow your trading plan, but first, you have to put in the effort. You can join a free social trading network Traders Circle to communicate with other traders and investors. To truly receive a proper trading education and want to learn more about trading plans you can reach out to a trading mentor on the TMO platform.
Written by Cas Daamen an expert Forex trader and mentor.