subject: 5 Important Reasons to Have a Trading Plan [print this page] 5 Important Reasons to Have a Trading Plan
1.A Trading Plan helps you plan your trades - Have a method or strategy with which you use to trade is very important otherwise you are gambling and not trading.
2.It makes you consistent - Having a plan takes away guess work in your trading and makes you consistent with your trades. This helps you become a successful trader.
3.It makes you objective - Having a plan also makes you analyse your trading strategy and trading history in an objective way because you have been applying a consistent plan. This then helps you assess in an objective way whether your plan is successful or not.
4.It makes you disciplined - Having a plan is a way of keeping yourself in check and avoiding outside interference with your trading. It is also a way of assessing yourself as to whether you are the cause of your bad trades or the plan.
5.It makes you a good trader if you stick to it!
Simple Features of a Trading Plan
State which markets you which to trade.
Which time frame you which to trade for the chosen market.
Strict criteria for market entry - which indicators to use.
Strict criteria for market exit - when to take profits.
Example of a simple Trading Plan
Market to Trade - EUR/USD
Trade contract size - 0.5/point (50p per point)
Use risk to reward ratio of 1:3 (Day Trading)
Use a stop loss of 20points and Limit Profit of 60points (Day Trading)
Swing Trading - Use a stop loss of 100points and Profit taking (exit) at next Fibonacci retracement.
Always check economic calendar for reports of HIGH importance before you commence trading for the day.
Don't trade before a report of high importance comes out.
Check 1year Daily chart 1st for an overview of the market.
For Swing Trades I will use the Fibonacci Retracements as my entry and exit points.
For Day trading - Use the 2days 5mins Chart and Pivot Points for points of entry into the market.
Use the MA50 as the trend indicator and will only trade in the direction of the trend.
When the market is trending sideways, DO NOT TRADE!
When I have 3 consecutive losses, STOP TRADING FOR THE DAY!!!!
When profit target has been achieved, STOP TRADING FOR THE DAY!!!!
Understanding the importance of a trading plan is crucial to your success as a trader.
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