The Importance of Having a Trading Plan - Part 1

The start of the new year brings new challenges, aspirations and goals where we all look ahead to what's in store for our trading in 2015. We can look back on 2014 with satisfaction or perhaps a burning desire to make 2015 the year where our trading really steps up a gear. Regardless of how your previous year has been and whatever your trading goals may be, we can say with certainty that a well thought out Trading Plan is a must if you want to reach your trading goals in 2015.

A Trading Plan is a written document that you have put together which stipulates how you're going to approach and trade the markets each and every day. Your aim is to follow what you've set out in your trading plan to give yourself the best chance to make money in the markets for the year ahead. Subjects in your trading plan could include topics such as Goal Setting, What Markets and Strategies you are going to trade, Money and Risk Management, Daily Trading Routines and Record Keeping.

Let's take a deeper look into what these subsections may contain to assist you in putting together your own Trading Plan.

Goal Setting may seem like a topic which gets overhyped and something that hasn't really worked for you in the past. However, every good trading plan needs a goals section as it gives us direction and a destination. Trading without goals is like sailing off into the horizon without a rudder to keep you on the right path. Needless to say you will probably end up getting blown off course and you won't arrive at your destination. Make sure you set goals that are beyond you right now but still achievable. Detail out what your goals look and feel like and think and act as if you have already achieved those goals. Here's an example of a goal from a trading plan: "I was able to achieve consistently profitable monthly results of at least 3% per month for 10 months of my trading year. I successfully grew my trading account." By writing your goals out in the future tense you might just surprise yourself if you put in enough effort to achieve these goals.  

In your trading plan you also need to define which markets you will be trading and also what trading strategies you're going to use to trade those markets. It may be that you only plan to trade the Forex market or maybe you have opened yourself up to trading Forex, Stocks and Futures markets. Whatever market you decide to trade, you need to have planned ahead to trade these markets. This will ensure you understand how to position size correctly across all markets, what contracts to trade and what the market hours are for each product.

Along with what markets you plan to trade you also need to know what trading strategies you are going to use to give yourself an edge in the market. Here at Trade With Precision we would note down the three trading strategies that we use across any market and any timeframe. These strategies all have defined trading rules which give us a precise entry, stop and targets. The aim is to execute these three strategies flawlessly throughout the year and results should flow from doing so. If you are trading without a defined trading strategy you really need to go out there and start to find a method that fits and works with you. If you don't have a consistent method to work to how can you expect to get consistent results?  

In Part 2 of this series we will delve into how we include Money and Risk Management, Daily Trading Routines and Record Keeping into our Trading Plans so stay tuned. 

Happy Trading!

Regards,
The TWP Team