Build a trading plan in five simple steps
A trading plan is an essential part of every successful trader’s arsenal, but it doesn’t have to be complicated and cumbersome. By following these five simple steps you can create your own plan in as little as 30 minutes that will allow you to trade smarter and more confidently than ever before. Whether you’re new to the world of trading or have been at it for years, now’s the time to take control of your trading plan and make it work for you.
Now with today's modern trading platforms, trading is as simple as pick and click point and you're done. However, there's much more involved with the trade and setting up a successful outcome than simply picking and clicking. Part of this is building a trading plan.
building a trading plan comes down to five simple steps
1- Step one is to go ahead and have a reason to trade.
Now a reason to trade could involve economic announcement news may be a technical indicator that provides you a buy or sell signal. But the reason to trade should never be emotional in nature, you shouldn't be chasing after gains trying to make up for losses, it should always be a trade that's based on an actual idea, that's going to go ahead and allow you to realize positive returns. After finding a reason to trade,
2- the second step of the trading plan is to go ahead and establish your risk and your reward.
Because trading is all about calculated risk, the risks you're taking should always be compensated by the potential upside reward of the trade. Otherwise, you find yourself in a position whereby the risks of a trade exceed the potential upside. After we've established our risk and reward parameters for trade,
3- Step three involves going ahead and determining an entry point.
Now to do this, we can take from a whole host of different technical factors to identify important support and resistance levels, Fibonacci levels, or other important areas where there's a lot of price congestion.
4- Step four is simply an extension of step three. This time, we're going ahead and determining our exit point.
Now, because we've already set up our risk reward and determined our entry point, it's much easier to go ahead and set our exit strategy, win or lose. We've gone ahead and determined in the upside scenario or the downside scenario, where we're going to exit based on our risk reward. So if our entry point denotes the place that we're going to go ahead and enter a trade the risk on the downside is where we should place our exit. In the worst case scenario, and the reward side of the equation we set in step two should be our upside so where we want to exit in the positive scenario.
5- Step five is the most important but also the most difficult step up the trading plan
Maintaining your discipline with the excitement or winning or losing hanging over our heads. Sometimes it's difficult to go ahead and stick with a trading plan. We often find ourselves susceptible to greed or fear, which can cause us to deviate from the trading plan. Changing our exit strategies sticking with the trading plan is above all paramount to ensure that the outcome no matter win or lose is positive.
All that's left is to open a trade simply follow the steps you outlined. Maintain the discipline to stick with all the parameters you said and see the results for yourself.