How do you Create a Successful Trading Plan?

June 23, 2021

As most of you know by now, with everything that is happening in the markets, being a trader is probably the best occupation you can have right now. Trading is both a risky and rewarding position which is probably the thing that makes it so appealing.

Every job needs a plan and this is particularly important in trading. You have to have a plan for everything and you have to know every step in advance if you want to be a successful trader. Every trading plan should be tied closely to the trading strategy. A trading strategy should give you a set of particular rules with which you can identify high probability setups that happen on a repeatable basis.

A good strategy should give you an edge in the long run so that in a good sample of trades you end up with a profit and a substantial one at best. Every successful trading plan should also include things like risk management rules, trading times and markets, and your trading performance. Since trading strategy is just one part of the trading plan, today we will tell you more about the rest and if you want to you can compare all of this on Let’s get a bit deeper into the subject, shall we?!

1. Trading goals

Since trading plans are made and reviewed on annual basis a successful pšlan should have a good set of trading goals. These can be anything that is supposed to help you stay motivated to implement the rest of your plan. Since these goals can be anything, you can opt to add things lite work reduction to trade more or even move toward full-time trading. You can have any kind of monetary goals or the best thing are educational goals. Probably the best thing you can do is set both short term and long term goals where the short term goals are those small steps you need to take to reach the main aim.

2. Risk management

Now, we already mentioned these before and we will go a bit into depth with them. Risk management should be made as a set of rules. These are as important, if not even more important than trading strategy. Risk management rules should specify just how much of your account are you willing to risk on certain setups. This means that there will be set up types where you will, for example, risk up to 2% while there will be others where you will not dare go above 1% or even lower. Another rule you should have here is what is your maximum loss for the day below you will not go no matter what the circumstances are. This might mean you are going to be three full stop outs at 2% risk each meaning you will go down only 6% in one day and close the charts and come back again tomorrow. This is an important rule because it will hold you in check and stop you from blowing up an account whilst in an emotional state. Besides this, it will also protect your account from any natural drawdowns that occur through the correct implementation of your strategy. This means that, if you are not psychic, your strategy will not work every time and that there will be drawdowns now and again.

3. Trading markets and trading time

Here you can include only the markets you have backtested and more new markets will become available as soon as you finish backtesting, given the fact that the results show that the given markets or more are worth trading in. Another thing you can specify here is the time you are willing to trade on these approved markets and the example of that would be a limitation that state that on market A you will be trading only from 8 AM to 11 AM when the volatility is higher. The other thing is that you chose another period which you have found that supports your strategy better or that it makes your strategy more effective.

4. Account growing

Account growing should be something that you consider well. you can opt for reinvesting profits or you can opt to add money from other saving methods. This step s really important if you plan on making regular withdrawals from your account because you need to make sure that you are not taking more from the account than the amount the account is making. If you don’t figure this out you will drown your account pretty fast and you will not be aware until it’s all gone.

5. Backtesting

This is something that should be done regularly and it is something that should find its place in a successful strategic plan. By doing so you will manage to stay on top of your game and constantly know exactly what you want and need to test, and when are you going to do that exactly. By doing so you may end up with some ideas on how to reduce the stop loss sizes on some of the setups or come up with some new ways to reach bigger targets. Have some time set aside every week or two when you can dive into these backtests to potentially improve your trading strategy. Doing these backtests regularly will also help you be better at implementing your strategy in live conditions as well.

6. More education

Education never stops and this is rather natural. It doesn’t matter anymore how you got into trading or for how long have you been trading there is always room for improvement and room for more learning. A good way to maximize the amount you learn each time is to set up a brief roadmap of topics or aspects you wish to familiarize yourself with or learn more about. This could be new analytical methods, fundamental methods or simply learning more about and from other traders. Books, courses and seminars are always a good place to start with these, but you have to know that you have to set some simple goals that you would like to achieve throughout a certain period and map up how exactly you are planning to achieve it.

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