As I have stated may times in numerous videos and documents, a trading plan is absolutely necessary for every trader. It doesn’t matter if you trade Forex, Futures, Stocks, Options or all of the above. As the old saying goes, ‘when you fail to plan, you plan to fail’. Just like every good business has a good business plan, every trader should have a good trading plan.

Now, you may just be starting out and not familiar with all of the nuances that go into trading. Don’t worry, that is why I have written this guide; to help you get your trading plan put together in as little as 60-90 minutes.

You will also be seeing real examples of my own personal trading plan, which will go a long way in helping you put your unique trading plan together. I underlined the phrase, unique trading plan, in the last sentence because that is the first thing that you must know; every trading plan is unique to the individual. Let’s get started.

Trading Plan Basics

What is a Trading Plan?

The most basic definition that I can give you for a trading plan is this:  A complete and detailed set of rules and guidelines for every situation that you could possibly experience in the trenches of the market. Most amateur traders do not have a specific plan that they follow in their day to day trading decisions; and, as a result they achieve amateurish results. A trading plan isn’t a trading strategy; instead it is what will help you separate from the crowd. Instead of most traders, who blindly fumble through their trading career, you will have established your plan of action to do business with the markets. This business of trading includes a complete set of trading rules.

A good trading plan has four main components at its heart: 1. Strategy Rules 2. Risk Parameters/Money Management 3. Emotional Evaluation 4. Results Analysis.  We will discuss each of these components within the context of this document.

Traders with a plan have the ability to monitor their performance on a daily, weekly, monthly, and yearly basis. This allows a trader to see areas for improvement at a quick glance. By having a plan and following that plan, you will remove much of the emotional stress and strain that comes with trading. After all, trading can be an emotional roller coaster when you have not already pre-determined how you will react when a trade doesn’t go your way. If you are trading your plan a losing trade is nothing more than a part of the statistical average of winners and losers.

Now, like I stated in the disclaimer a plan does not guarantee success; just like a business plan does not guarantee the success of the business. Trading is one of the most competitive and unpredictable businesses on the planet. However, if you will follow your trading plan to a tee, you will minimize losses incurred by mistakes and you will have a plan when events occur that are outside of your control.  In his book, Trading Online, Alpesh B. Patel writes, “While a plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control - yourself”.

Essentially a trading plan is a roadmap. A trading plan can lead to a destination of consistent profits. You wouldn’t just get in your car and start driving to Timbuktu without a road map. A specific set of turn by turn instructions. That is exactly what a trading plan is. A set of step by step, turn by turn instructions that encompasses what you will do in every market situation.

What Will It Do?

Below is a list of the common benefits to having a detailed written trading plan.

1.    It makes trading easier, more fun and, less stressful.

2.    It reduces bad trades because of mistakes and errors. Like a baseball player, has errors, traders can also make errors which can create huge losses.

3.    It can help what I call psychological heat to be reduced. When real money is on the line, emotions can run very high and very low within a matter of minutes. A plan that is followed will help you battle this.

4.    A trading plan gives you the ability to monitor your results, diagnose bad trades and good trades, and refine your overall trading system.

5.    A plan allows you to control yourself.

6.    A trading plan will allow you, even as an amateur, to operate more like a professional; and become highly disciplined.

7.    A trading plan will help you to cut losses short and let profits run.

8.    A trading plan, much like a voice activated GPS system will let you know if you took a wrong turn very quickly.

Keys to Using This Template Successfully

This template is designed to help you put together your own personalized trading plan, one that suites you as a trader and as a individual. There are many aspects that differentiate you as a unique trader and yet there are many aspects that group you into the broad category of traders. The first key is to be very honest with every question. Deciding to trade, like almost all decisions in life, is all about motives. So be brutally honest with yourself and really dig deep to find out the true motives behind every answer.

I am going to list a set of keys to making sure this experience is profitable for you.

1.    Simple plans almost always work better than complicated plans. Many of these steps are very simple. They are designed that way. Even if it seems overly simple, continue to go through the step.

2.    Dig deep and think about your answers for a while before you move forward.

3.    Be careful not to be unrealistic, and don’t give generic answers. Define and qualify your statements.

For example:  Suppose you are a Forex day trader that only trades the GBPJPY. You would need to ask:

a.    Why Forex?

b.    Why day trading as opposed to swing trading?

c.    Why the GBPJPY as opposed to the GBPUSD?

Maybe Forex because you need the flexibility of higher leverage and lower trade size.  Maybe swing trading because you don’t have enough time for day trading.  These are good reasons, but will they insure your success? Start with a trading plan. When will you write it? These are the kinds of questions that you need to ask yourself.

4.    Creating a trading plan is more about learning yourself than anything else. Go with the process.

We’ll begin in tomorrow’s lesson.

Best regards,
Cecil Robles

You may use this post in your own blog or newsletter as long as you include this little blurb: Cecil Robles is the president of www.4xeducator.com and Ethos Inc. 4xeducator.com provides high quality education and alternative investment solutions to retail and institutional traders. You can visit them at www.4xeducator.com

Disclaimer
This document was prepared with a spirit of excellence and due diligence. However, the ideas contained within this document may not be suitable for your trading style. Trading is risky business, and while putting together a trading plan is good, it does not guarantee your success, nor will it prevent you from incurring losses. Losing is a part of trading. If you are not prepared to have losses, do not trade. Any losses that are incurred are the sole responsibility of each trader. Under no circumstances will I, 4xeducator.com or any other contributor to “The Most Necessary Document Ever For Traders of All Types” accept any liability for loss.