What is a trading plan and how do you create one?

What is a trading plan?

March 18, 2021
2 years ago

To operate in trading, it is fundamental and basic to have some form of trading plan. This consists of planning, defining, and specifying the objectives and guidelines that you are going to stand by in your daily strategy. It is your personalized work plan adapted to your needs, you must create it yourself but, above all, you must follow and respect it. The markets are very volatile and trading shouldn't be left to chance.

A trading plan is where you outline point by point, like a ticklist, all the aspects related to your trading operation. And if at any time these boxes are not ticked, you must let the trade pass.

Why is it important to have a trading plan?

Firstly, before starting to trade on a real account, it is important to learn how to trade on a demo account (you can read our post about the best trading platforms here). In the demo account you can test your plan as many times as necessary and, in this way, see if it is really fit for purpose - and above all if it is reliable or not. It does not have to be complicated or very long, the simpler and easier the better. Mind you, it should be practical, realistic and honest.

Once you start earning money, you are ready to move to a real account. Of course, keep in mind that there is no perfect plan that will help you trade infallibly!

What elements should your trading plan include?

As mentioned, the plan should be personalized. Therefore, the elements may vary depending on each trader, although there are a few fundamental ones that you should include in your plan. These are:

  • Your profile as a trader: in addition to your training and experience, identify the markets that best suit your needs, how much time you can dedicate to trading, what your motivations are, and what your mentality will be when trading and especially what your attitude to risk will be. The trader mentality requires being objective, cold-minded and prudent, in this way, you will avoid making hasty decisions.

  • Objectives: define where you want to go and what you want to achieve. Here you can detail the route or steps to follow. The more specific and concrete you are, the better. At what stage are you? What capital do you have available? Will you trade short or long term? Daily, weekly, monthly? ...

  • Trading: in this section, analyze all the points related to your routine. That is, the steps to follow in your day-to-day trading. In which markets are you going to operate, what are the operations that interest you the most, what is your availability like, how often will you review the information and graphs, at what time, etc.

  • Methodology and Registration: develop a methodology that works for you and records the entire process of your operations day by day, to analyze your trades. This way you will be able to assess what has worked for you and what has not, and will give you a better perspective of your operations. Do not forget to take into account aspects such as market trends, supports, and resistances, confluence factors, etc.

  • Monetary control: this section is essential. How are you going to plan and manage your investments and especially how are you going to manage risk? Here you should take into account aspects such as the size of the operation, establishing your StopLoss and Take Profit, profits/losses, etc. Our recommendation is that if you see that your plan works, assume small additional amounts, to avoid greater losses.

Finally, remember to propose a strategy in your plan that is realistic, follow your routine with perseverance, discipline, and organization, avoid impulsiveness and act without rushing. Be patient, and only when you feel safe and confident launch yourself into the real trading world with a real account. Carrying out a Trading plan takes time and effort but it will become your right hand man in your day-to-day as a trader.

To learn more about trading subscribe to the Trader Club and our YouTube channel. Here you will find strategic tools to help you train to become a financial professional.




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