Trading is a business of risk management. In order to stay consistent running a successful trading business, we need to have rules around how we trade, how we manage risk and how we run our business. This is why it’s important to have a trading plan. Traders who don’t have rules or structure lose money as a direct result of trading becoming more of a hobby rather than a business. Like any business, maintaining structure and efficiency is the key to success! If you’ve never made a trading plan before, it came seem a bit daunting. However, we like to break it down into steps and 3 key elements.
Think of building your trade plan like building a house. You need to have a solid foundation on which to build this new business. There are 3 Pillars of a Successful Trading Plan.
#1: Trading Business Plan
This pillar is made up of your business objectives and structure. Think of this as the “why” of your trading. You should have a general overview statement and define your mission and vision, much like an entrepreneur would. Another important aspect is to know your trading style. Are you a scalper or a swing trader? What market theories or tools are you going to use to predict the trends? What kind of markets are you looking at (gold, oil, options, futures)? What are you trade margins and how much capital are you using to trade? Other specifics of your business like which broker to use, what hours you plan on trading, your equipment and resources also should be listed here.
#2: Trading Action Plan
Once you’ve defined the details of your business, now you need a plan for the application of the trading business. It’s important to have a process and strategy when training, and this is where you will section that out. Knowing your preferred market trading conditions and risk tolerance is important. Along with what trade setups you feel comfortable using daily. Figure out what routine will work and what rules you will stick to when trading. For example, we have a “3 strikes and you’re out” rule – 3 losses in a row, you stop trading for the day. This can be different depending on your unique situation.
#3: Trading Psychology Plan
Now that you know details and how to apply them, you need to look at your physical and psychological component. Map out your personal strengths and weaknesses as well as your trading strengths and weaknesses. Acknowledge what you can change and make objectives to achieve that. If you want to learn more about order-flow, make an action plan of educational sources and start studying! Evaluate your business and personal life and decide how you’d like trading to tie into it. Trading can be stressful, so make sure you also plan to take personal time for fun, family, and exercise into account when building your ideal trading philosophy. Remaining healthy and active will keep you in a good frame of mind so you can enjoy my work but still have balance in your life.
It will take you some time, but with these 3 pillars in place – you can build a firm foundation for your trade business. With a little work, you can remain accountable to your trading business and decisions at all times. This stability will fuel your consistency and help build the way to your eventual success as a trader.