A trading plan is a set of rules and guidelines that shape and define your trading decisions and trading behaviour. It covers many important points including your financial goals, money management rules, risk management techniques and criteria for opening and closing positions.
Many traders choose not to use a trading plan and that’s one of the reasons that many traders end up making unsuccessful trades. In this article we will show you how to develop a six-point trading plan.
Six-Point Trading Plan
The following plan shows an outline of the 6 steps that you should take into consideration before starting to trade:
1. Trading Strategy
Trading strategy basically includes your trading system; Are you a day trader or a swing trader? Which time frame you use, which market conditions you use, swing, trend, or ranging conditions.
2. Risk Management
Define your risk for each trade. How much you should risk per trade, 1% per trade and 3% on total open positions.
Which markets you like to trade in, or are good at (eg. FX, Stocks, Futures, Bonds.) Select a market that you are good at and create a trading plan for that market.
Define the entry conditions, where you will enter at Support/Resistance levels, Pullbacks, breakout or crossover.
Define your stops, where you should set stop loss, away from market structure or below the support/resistance levels, or below the Moving averages etc.
Define where you will exit the trade, by having a fixed target, or using trailing stop or using ATR etc.
Trading plans are an essential tool for profitable trading. Without one, you may make a mistake that costs you money. We hope that this plan will help you to create better trading plans and to start generating better results.
For more helpful article, check out our Forex education section.