Learn to Trade

How To Create a Trading Plan

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A trading plan is a framework that guides traders in their trading process. This sets the conditions where the trader enters and exits a trade, identifies markets, and manage risks along the way. This helps the trader with accountability and keeps traders focused on their strategy.  

Here are the following steps on how to create your own trading plan. 

1)  Choose Your Analytical Approach 

This is the initial step of the trading plan that help traders narrow their focus on scenarios that the trader is comfortable with. With this, they can look for opportunities that the trader is comfortable with based on their trade set ups. 

This approach answers the question, “How do you identify trade set-ups?”. This is a combination of price support and resistance, use of fundamentals, etc. 

2)  Focus on limited markets 

Looking at the market may seem overwhelming. When you start out, it is important to limit your focus on specific markets. Remember, there is no market that is the same. By limiting the scope of the market, you can understand the market  more. You can also focus on the time frames of the single market for familiarization of the movements and characteristics. 

3)  Decide on what type of trader you are 

When you focus on short term trades, you can be classified as scalpers and day traders. Medium term traders usually hold trades a few hours up to a few days. They are called swing traders. Long term trading involves a number of days, weeks, months and maybe even years. 

4)  Risk Tolerance 

Risk management is an important factor of your trading plan. Without this, everything will fall apart. With this step, you need to know how much you are willing to risk and how far you are willing to set stop losses when limiting downside risk. 

5)  Plan How You Will Handle Situations 

All traders would experience success as well as failures. It is important for traders to set rules in order to manage emotions. An effective way is to quantify loss that indicate when the trader would stop trading and take a step back to analyze and evaluate what the problem is. 

When you are successful, overconfidence can quickly turn trades into losing ones. Try not to increase your risk too much at most, take it to a minimum. 

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Learn to Trade Pty Ltd (ACN:138178542, AFSL:339557) provides general information and educational courses and materials only. This is not an offer to buy/sell financial products. We do not provide personal advice nor do we consider the needs, objectives or circumstances of any individual.  Financial products are complex and all entail risk of loss. Over-the-counter derivative and foreign exchange products are considered speculative because they are highly leveraged and carry risk of loss beyond your initial investment, hence should only be traded with capital you can afford to lose. Please ensure you obtain professional advice to ensure trading or investing in any financial products is suitable for your circumstances, and ensure you obtain, read and understand any applicable offer document 

 

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