Steps on how to build a winning trading plan

Steps on how to build a winning trading plan

Last updated on June 9th, 2019 at 07:46 pm

As far as business is concerned, anyone that failed to plan is threading the paths of failure. Any trader who desire achieving success must take the issue of proper planning very seriously.

Successful traders have something in common that keeps pushing failure out of their way: they methodically follow a written plan.

Unfortunately, it was discovered that only few traders have a written trading or investment plan.

Although it’s not an entire guarantee of success, having this plan will remove a vital roadblock.

We should also note that if your plan is using flawed strategies or is without preparation, success won’t be achieved immediately.

But at least, things can be made right when the right knowledge comes. By documenting the process, it won’t be difficult to learn what works, and you will know how to ignore certain mistakes.

Whether you have made a plan right now or you are yet to do so, here are some useful tips that will help with the process.

Disaster Avoidance 101

If you as a trader desire succeeding, then you must treat trading as the business it is.

Before anything else should be done, a business plan should first be in place.

Once you are aware of where the market has the capacity to stop or reverse, they should then determine which one it will be and act appropriately.

Immediately the market has closed, plans drafted can be subjected to re-evaluation. In clearer sentences, it is very flexible, as it changes with market conditions and improves as the trader’s skill level gets better.

You should write your own trading plan, taking into consideration personal trading styles and goals. It is not reccomendable to use someone else’s trade plan.

Have you read this:  Goldman Sachs launches fintech consumer bank in Britain

And so, we will give you 10 features that makes up a good trading plan.

1. Skill Assessment in trading plan

If you are really set to trade, then you should have test your system by paper trading it.

By so doing, you will be able to know if you have the confidence that it truly works and if you can actually follow your signals without waiting.

There is something you must realize about the trading market. It’s all about give and take – some professionals collect their profits from traders that don’t have a plan.

2. Mental Preparation means a lot

It is necessary to be prepared mentally. You must be good in regards to your well-being, try to get good sleep and feel up to the challenge in front of you.

A trader who isn’t emotionally and psychologically ready to slug it out in the markets is advised to take a day off.

If something personal has made you angry or getting you distracted from the job at hand, you might lose something if you decide trading. Also ensure that your trading area is free of distractions as such can be dangerous.

3. Set Risk Level

A trader should set risk level too. He should know how much of his portfolio he is ready to risk on any one trade.

Of course, the determinant for such can be hinged on one’s trading style and risk tolerance.

It can be from around 1% to as huge as 5% of your portfolio on a given trading day.

So, if that amount was lost at any time of the day, the trader simply get out till the next day.

4. Set Goals

It is advisable to set profit targets that are realistic, as well as risk/reward ratios. A trader should ascertain the minimum risk/reward he is ready to accept.

Have you read this:  Amazon hit Massachusetts with hundreds of jobs (See details)

Some won’t pick a trade if the potential profit is not at least three times greater than the risk.

Generally, a trader should have realistic weekly, monthly and annual profit targets in dollars or as a percentage of his portfolio (and he shouldn’t stop reevaluating them regularly)

5. Do Your Homework

Try to know what’s happening around before the commencement of the market. Try to know the current condition of foreign markets and see what index futures are saying (they are a nice way to gauge market mood before the commencement of the market)

Be familiar with economic or earnings data and consider beforehand if you will like to trade ahead of an important report.

But many will recommend having some patience until the report is released than taking risks that are not necessary.

6. Trade Preparation

Before you start trading on a system, try to mark major and minor support and resistance levels and also set alerts for entry and exit signals.

7. Set Exit Rules

Many people spend most of their time looking for buy signals and they pay little attention to the time to exit (as well as where to exit). For some traders, they will choose not to sell if they are down as they don’t want to take a loss.

But such things should be passed over if one desire making it as a trader. You shouldn’t take losses personal, as even the pros loses a lot of trades too.

As a trader, it is advisable you know where your exits are located before you enter a trade. Try to decide on what your stop loss is if the trade goes against you and note them somewhere.

8. Set Entry Rules

A trader’s system can be with a lot of features (as far as it is effective), but should also be simple enough to allow quick decisions.

Have you read this:  How Nigerians use fintech for business and sales

A trader who has 20 conditions that must be met and a lot are subjective, will find it hard to really make trades.

Actually, it is popularly agreed that computers usually make better traders than humans. And so, a large percentage of all trades that occur on various stock exchange are computer-program generated.

Computers only jump in when the conditions are met, and they aren’t emotional beings like humans.

9. Keep Excellent Records

If you want to be successful in trading, then you should be a good record keeper. Whenever you win a trade, you should know why and how they came to pass.

When you lose, you should know why you lose – to avoid making similar mistakes.

10. Perform a Post-Mortem

After all is done for the day, you can add up the profit (or the loss, as the case may be). Have a trading journal where you can write down your conclusions so they can be referenced later.

The Bottom Line

Of course, achieving success in paper trading is not a full guarantee of success in the real thing. However, successful paper trading can give you the confidence that the system actually works. But before taking any real step, have a good plan.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: