When people start trading, they focus on searching the most profitable trading strategy. After the right strategy has been chosen, traders usually think that they just have to apply it and the profit will come. But there is one thing which traders usually forget about – trading plan.
What is Trading Plan?
Trading plan is a written list of actions which should be done in order to reach the trading goals. This list can consist on the methods of trading or the detailed description of the trading process.
Such plan gives trader the answer on what, why, how and when should be done in order his trading strategy to be profitable.
Why is trading plan required? The first thing a wise man should do when he starts a business is to write a business plan. He describes his goals, the steps to reach them and all the aspects of his business in this plan.
Having a clear goal is one of the keys to success for trader.
The same is with trading, trader should create a trading plan before he starts to work on the currency market. When implementing trading plan careful planning, discipline and caution are required.
Having a clear goal is one of the keys to success for trader. The clear plan motivates the trader to implement his intentions. In addition to that, it gives an opportunity to compare the achieved results with the planned ones. If there is no plan, it is difficult to determine whether the trader has reached the goal or not.
Another advantage of the trading plan is that it helps to make a right decision in the critical situation when the emotions can confuse trader. As the conditions often change on the market, it is very important to know how to behave in this or that situation. So trading plan gives an opportunity of self-control.
Contents of Trading Plan
There are no specific rules of how the trading plan should look like and what it should consist of. The content usually depends on the trader, because the plan is created in the format which is convenient to him.
Personal part should contain the personal point of view about trader's targets, motivation and way to success. It is necessary to believe in this point of view and work hard to implement it in the real life no matter what obstacles will appear.
The personal part should not be related with any technical aspects, only desires, aspirations and expectations of the trading process. For example, trader expects that trading will give him an opportunity to spend more time with his family.
Business part contains everything related to trading: knowledge and skills trader wants to use. It is also required to set a trading goal in order to improve the trading skills. It would be better if the goal is not connected with the money but with the progress of the trading. For example, the trading goal for the first year is to increase volumes and minimize losses.
Trader should also consider all disadvantages of his knowledge about the Forex market in order to prevent losses which they can cause.
Trading part is the most important part of the plan. It contains step-by-step description of the trading process. Such things as a timeframe, preferred strategy, trading terms, volume and etc.
The financial component plays not the last role in trading. So you should think about money management. It is important to protect the account from quick run out. In order to fulfill this, trader should decide what part of his balance to use in trading. As of the expected profit, it should be calculated and added to the trading plan.
The worst conditions that may occur should be foreseen and they should not be a surprise for trader.
The last thing which should be indicated is an emergency plan which should be used in case of unexpected events. It is one of the keys to trader's success to know how to behave in such situations. The worst conditions that may occur should be foreseen and they should not be a surprise for trader.
After the trading plan is ready, you should only implement it. Note that while trading, it is required to record what has been done in order to compare the actual results with the planned ones.
So haven't you made the trading plan yet? It's time to start planning your trading process. The trading plan is your path to comfortable, successful and profitable trading. So don't waste your time, begin creating your plan right now!
IF YOU FAIL TO PLAN, YOU PLAN TO FAIL!