Trading plan in neccessary before you decide on winning the stock market. it’s like trying to build a house without blueprints – costly mistakes are inevitable resulting in huge losses .
Why do you need a Trading Plan?
1 – During the trading hours, emotions will turn smart people into idiots.while making trading plans and following it emotions should be kept at bay . Therefore, you have to avoid having to make decisions during those hours. your emotions like greed and fear should not affect your decisions while trading , it should be strictly accordingly to the trading plan . With a good plan, your task becomes one of patience and discipline.
2 – consisitency in actions results in consistent returns. – consistent actions can only be achieved through a detailed plan.
What should be in your trading plan?
1 – Your strategy to enter and exit trades
before entering the trae you should be able to explain the detailed plan in action .You also have to describe the conditions under which you will close a position. These conditions may include technical analysis, fundamental analysis, or a combination of both. They may also include market conditions, public sentiment, etc…
2 – Your Money management rules to keep losses small – the goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:
– Maximum amount at risk for each trade.
– Maximum amount at risk for all your opened positions.
– Maximum daily and weekly amount lost before you stop trading
3 – Your daily routine – after the market closes, before it opens, etc…
4 – Activities you carry out during the weekend.
I will follow a trading plan to guide my trading – therefore my job will be one of patience and discipline.
– I will always keep my trading plan simple.
– I will take actions according to my trading plan, not because of greed, fear, or hope.
– I will not deceive myself when I deviate from my trading plan. Instead I will admit the error and correct it.
I will have a winning attitude.
– Take responsibility for all your actions – don’t blame the market or world events.
– Trade to trade well and for the love of trading, not to trade often and not for the money.
– Don’t be influenced by the opinions of others.
– Never think that taking money from the market is easy.
– Don’t try to guess the future – trading is a game of probabilities.
– Use your head and stay calm – don’t get excited or depressed.
– Handle trading as a serious intellectual pursuit.
– Don’t count how much money you have made or lost while you are in a trade – focus on trading well.
A trading plan will not guarantee you success in the stock market but not having one will definately guarantee failure.