subject: Sticking To The Plan: The Importance Of Following Your Trading Plan [print this page] Making a trading plan is no jokeMaking a trading plan is no joke. It takes a whole lot of effort and research to come up with a trading plan that is perfect for you. But the problem is, sometimes, when that ticker or number goes up and up or down and down, we aren't control ourselves and jump the gun on selling whether for profit or loss.
The problem with that attitude is, once you break away from your trading plan, nothing can stop you from doing it again. Rationalizing your violation of the plan by any profit you've earned is just a step away for you. That's pretty much where it begins and it's all downhill from there. Pretty soon, you'll be ignoring that trading plan you made and just go with the flow of the market. Oh, yes, you'll have a few successes and then you'll be broke, having thrown away your money on sure things.
What some traders don't realize is that trading plans are more than just a few rules and guidelines for you to follow when you start trading. A good trading plan, and I mean a really good one, reflects your personality and should not be easy to break away from. When it is well-made, a trading plan takes into account your personal temperament and should be constructed in a way that all of its instructions are things that you will be comfortable with. This is why the first part of creating a trading plan is to always determine what are your mental limits are; both in terms of knowledge and in your personal character. A worrier's trading plan will be incredibly different for one made by someone who is more daring. It may not seem like much but watching the stock prices fo up and down can have a heavy toll on a person. That's why making a plan that you're personally comfortable with is important. If you're comfortable with the plan then it will be easier for you to follow it.
Why is it so important then, for you to follow your trading plan? It's pretty simple actually - discipline. Discipline is sometimes a hard thing to have when you're in the middle of a rough-and-tumble market. A good trading plan keeps you on your course and gives you definite goals. A man with a purpose and a plan to reach that purpose always beats out anyone who just has a vague idea of what he's doing. Traders who don't have a plan, or have plans that are vague, usually end up panicking when bad stuff starts to happen. Even when good stuff happens it can confuse a trader, like suddenly selling all your stock at what you thought was a good price when you could have sold at a higher price later. A good trading plan limits how much you buy and how much you sell at particular levels, maximizing profits or minimizing loss.
This is why you should try your best to follow your trading plan. Keeping that iron discipline and keeping yourself following the plan that you made may be hard at times. It may even cost you in terms of profit, since even plans can't be perfect. However, let me assure you that keeping to your trading plan is the only way to go if you want to be a serious trader.
by: Diego Armando
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