Last week I wrote why you should Always Use a Trading Plan...This week I’m diving deep into the importance of a trading plan...but first a short recap...
A trading plan, which is no different than a business plan of sorts, is a written set of rules that specifies a trader's approach to the markets and the type of vehicle they are using for market exposure! entries, exits, patterns, position sizing and money management criteria for every position are all written into the Trading Plan.
With that being afforded to us by the way of technology, it is a lot easier to test a trading idea before risking real capital. Known as “back testing”, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and back testing shows good results, the plan can be used in “forward testing” manner without capital at risk...this is known as “paper trading”. The general concept is to first back test, then forward test on paper and then, AND ONLY THEN, if there is a profitable result, you then deploy capital with risk management at the top of the list!
Here are a few reasons why you need a Trading Plan:
First off, It will help you steer your trading in the right direction as you start your journey and as you grow your knowledge base...
Think of a trading plan as a GPS to get your P/L going the right way… Something to constantly be working on! . A good trading plan guides you through each stage of starting and managing your strategy. You’ll use your trading plan to structure, run, and grow your trading account business...remember, this is a BUSINESS...treat it like and and you stand a better chance of surviving! #FACTS! It’s a way to think through and detail all the key elements of how your strategy works...From finding opportunities, position application to risk management...and everything else I missed!
Creating a Trading Plan is not as hard as you think...It’s actually very simple!
In simplest terms, A Trading Plan is a written tool about all the inner workings of your strategy. It's a set of rule based guidelines you're to follow... Think of it as your boss giving you very specific instructions to follow that are developed with risk management in mind! The only difference here is you’re your own boss. So you’re actually keeping yourself in check! Hard to do for most. But I have faith in you! Break your trading plan down into mini-plans – one for scanning, one for patterns, timeframes and financial vehicles etc.…
Did you know that A Trading Plan will help you achieve your goals?
A well-thought-out trading plan helps you to step back and think objectively about the key elements of your strategy and informs you of the decisions you should be making as you move forward. Keep in mind that the plan does not have to be like an encyclopedia and does not have to have all the answers...it simply has to have guidelines for you to follow that offer you structure. 99.9% of a trading plan is ALL about risk management!
There’s no wrong way to write a trading plan..if you develop one and it doesn't work, simply look at all the components that didn’t work in your favor, take them out of the equation, and write another one with different rules structured in...NOT ROCKET SCIENCE GUYS!
Again, there is no wrong way to write a trading plan...the worst thing you can do is NOT have one! The most important thing is that your trading plan meets your knowledge of the markets .
Most trading plans fall into one of two common categories:
traditional (as in you have one) or non traditional ( as in you don't have one, you're flying by the seat of your pants and you’re one trade away from complete account annihilation).
Traditional trading plans are more common and a safer way to play the game. Don't over think this, use a standard structure, and encourage yourself to go into detail in each section. Traditional trading plans tend to require a little more work upfront but will save your ass long term!
Bottomline...you need a trading plan and I’m personally going to help you!
In the All Access Member area we have templates for you. One of which is a video and downloadable sheet to make things easy...not to mention over 220 hours of training content and 150+ images in the Imagery Library!
