“If you fail to plan, you plan to fail” is an old expression that carries deep meaning in trading success. There are only two options available to traders in terms of the trading plan, i.e., either make one or fail. Starting in the financial markets is a pretty challenging task, and many do not reach the top 5% that withdraw money consistently. If you already got an action plan, you have started to pave the road to success.
A trading plan consists of all the essential sets of rules to be followed by a trader when he is on or off the markets. It defines the conditions covering risk management, psychology, trading system, expectations, and much more. You can divide your master scheme into various parts, including long/short term goals and the method to achieve them.
Many traders, mostly beginners, confuse themselves in between a trading plan and strategy and system. The fact of the matter is that all these three are different terms.
|Trading Plan||Trading System||Trading Strategy|
|Part of||The big overall scheme||Trading plan||Trading plan|
|Describes||Everything including your game plan, risk management, etc||Your entry and exit into trades||The setups needed to place an execution|
Key benefits of a trading plan
It will be hard to say that we can comprehend all the benefits of a trading plan. However, we have summarized the key points below:
- Psychology. Your game plan can help keep your mind under control. Greed, fear, euphoria, happiness bursts, FOMO (Fear Of Missing Out), etc., all can be kept in control. Never let your emotions get the best of you again.
- Monitoring your performance. If you are consistently losing in trading, there is something wrong with the plan, or you are not following it correctly. The master scheme acts more like a hypothesis where one can confirm the output by doing experiments. If you follow your action plan properly, you may go into the markets again for another round. In short, it is best to use a performance gauge.
- Consistency. Something that all traders dream about. If you are a newbie in trading, you will hear this word from every person’s mouth on the markets. However, only a few can achieve steadiness, and it should be kept in mind that consistency equals consistent routine. A trading plan can force you to stick to the same thoughts and rules for each trade, ensuring regularity and uniformity.
- Organize. You will be able to maintain and organize your trading with the help of a game plan. Many traders take the markets lightly. All professionals in any niche keep themselves maintained on the top by following a prewritten fixed set of rules. All the big boys stick to the same methodology in trading and keep the whole process well established.
- Trading objectives. A good trading plan can help you get to your goals much faster. It is a proven fact that writing down your schemes increases your motivation and drive. Sticking to the original ideas will give you a push to reach your destination in a better place.
How can I make a trading plan quickly?
There is no way around making a trading plan quickly. It takes a lot of time to make one and even more effort to revise and refine the errors. Institutional traders spend years to create the perfect scheme, which puts them on the top. There are, however, some general pointers one can keep in their mind to make their game plan:
- Assessing your skills
- Preparing psychology
- Setting the risk
- Setting goals
- Doing a background check on fundamentals
- Preparing to execute
- Exit/entry rules
- Keeping records in a journal and analyzing performance
Each point holds a great value in developing your system. Therefore, do not ignore any at all costs. Sometimes missing out on little things can affect your performance by a considerable margin.
Do not intervene in your trading plan
Your trading scheme is initially available to protect you from losses. Emotions like greed can influence you to interfere in the game plan and make decisions against it.
Such an approach can cause substantial harm to your trading and eventual demise in their portfolios.
Do not circumvent your written plan to keep yourself alive in the industry.
Should I modify my trading plan?
The markets are never the same each day. They are frequently in a state of motion, which causes the randomness in prices. The severe ups and downs in the financial world make it hard to trade with the same ideas each day. If the prices were always moving upwards and all one had to do was buy, who would lose?
Constant irregularities demand the trading plan to be modified accordingly from time to time. These alterations need not be severe but a bit harsh. Only if you’re continually losing, then you have to figure out what’s wrong and maybe alter the whole book.
The road to the top of trading success is hard, and only 5 or 10 out of 100 make it. A trader’s skill set decides whether he is among the ones who deposit or in those who withdraw. Financial markets are a game of probabilities where nothing can be assured 100 %. However, even if the chances are not in your favor, a trading plan can help you survive this fight between bulls and bears and be consistently profitable.