TRADING PLAN | Why you need it and tips for creating one | TRADING TIPS
Jordi Martí, Head of Studies at La Factoría introduces the critical concept of the Trading Plan. Find out why you should set daily profit and loss limits, know when to trade, and review your trades the next day.
I am going to explain what my trading plan is. Each trader has his. Today I will talk about mine. I will explain the trading plan as I do it and it is how I know many traders do it. Obviously yours may be different, but you have to have a plan.
Analyze the market in the morning
In the morning I do...
Read moreI am going to explain what my trading plan is. Each trader has his. Today I will talk about mine. I will explain the trading plan as I do it and it is how I know many traders do it. Obviously yours may be different, but you have to have a plan.
Analyze the market in the morning
In the morning I do not operate. Therefore, in the mornings I have all the time in the world to analyze the charts of the S&P, gold, oil, Nasdaq, indices and commodities that I really do trade. Having time in the morning allows me to see what happened the night before, see what happened yesterday and change the time, realities ... It allows me, with all the time in the world, to analyze that graph, it allows me to see where there will be possible supports, where there will be possible resistances, where there can be market turns, where you can control the trend; that is, I am not operating. What I do is mark all these points to be clear in the afternoon, when I do operate.
Trade only on the points you have marked in the morning
If in the morning I have done my homework and I have analyzed the graph, and I work it in the afternoon. I have marked all the points where things can happen, where the statistics are in my favor. Those are the points that I must operate in the afternoon. Obviously the market is a living being and in the afternoon I can discover new points, but what I have clear is that I will already have marked those that I have worked in the morning.
Set a profit and loss limit
You should set a limit on losses, but I would also tell you that it is important to set a limit on profits. How many times have we started an afternoon making money and left at night having lost it? The limit of losses is clear: if I lose more than x percent of my account, I must stop trading because, in the end, if not I will go broke. The win limit is a bit more complex to understand. Let's imagine my profit limit is $ 300. Let's imagine that we have traded well and are making that $ 300. That is the amount that I can feel comfortable with. If the next operation I'm going to do is going to put that $ 300 at risk, don't do it. Imagine how the trades have gone, you are earning $ 360 and the next operation it has a stop that is single element, at 40 dollars. That is, if that operation It goes wrong and I will continue to earn more than $ 300, specifically 320. Yes, I can do that operation. But if my stop on the next trade is at $ 150, if this trade goes wrong and statistically many go wrong, I'm going to go home feeling a loss. Therefore, mark the one that for you is your profit limit. Over time you will be modifying it.
Work on what you have failed
Work on the operations that you have failed. Throughout the trading sessions we will make operations that we will fail. Some of us will fail because statistically we will fail them and others we will fail because we have operated badly. These are the ones that matter; that is, if I analyze an operation that is fine executed, but the stop has been jumped, nothing happens, it will be well executed, we already know that there is a percentage of operations that we will fail. The problem is when an operation has failed because I have operated it wrong. Those are the ones I have to work on. I do it the next day, calmly, before preparing the trading plan for that day. I have failed because I had to fail it statistically, no problem, I have failed because I have rushed, because I have entered late, because I have set my stop wrong ... that is what matters to me, because based on seeing it, I will improve my operations and eliminate those operations negative of my trading,
In short: prepare the operations in the morning, that gives you all the time. Trade in the afternoon the points that you have seen in the morning, you have already worked on them, you just have to operate them. Be careful with your limit of losses and above all keep in mind your limit of profits and take time to see why you have failed the afternoons. If you have failed because they were badly executed or because statistically those trades should have failed.
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