How often do we read or hear that title without really considering the full implications? In our wider industry, it has become such a silly and overused term that most traders (especially those new to the industry) fail to realize the full impact of the term or make plans for it. necessity, and can’t hold on to it yet. We will dilute the trading plan to the most important and critical components and link at the footer of this article to a template created by my industry contact Tim Wilcox who goes to great lengths to prepare and share superb trades with other traders. Tim has supplemented and refined the plan since he started writing it in 2005.
A trading plan is a highly personalized document. This can make fixed templates (created by others) difficult to use. Templates are inherently rigid and anchored to other people’s perspectives, needs, and goals, so it’s a personalized interpretation. Therefore, it can impose personal restrictions on traders. Your overview or PDF document template may contain elements that you may wish to ignore or discard. However, we recommend that you use it as a starting point, especially if you are new to the trading industry. Master the main sections , then personalize your plan to match your choices. Changes to the plan must not be made while trading, and will need to be reassessed once the market closes.
What is a trading plan?
Think of it as a business plan, we are prop traders after all, running our own micro business. If you’re approaching a bank, lender, or other supporter to fund your new venture or increase your line of credit, you won’t get a hearing unless you provide a comprehensive business plan.
A trading plan can be seen as a set of rules that govern a trader’s efforts to successfully trade the markets in his new business. It encapsulates everything a trader wants to achieve and how he/she will try to achieve it. A plan provides a mechanism for traders to measure their performance, and the plan can highlight milestones in the trader’s journey.
5 out of 5 – Five key aspects of a trading plan
1 Skill assessment :- are you really ready to trade? Have you tested your trading system with a demo forex account and have absolute confidence in your strategy?
2. Mental preparation :- you must be emotionally, mentally and physically prepared to trade the market. Again, it’s about the self-respect and market respect that you have to develop in order to be successful.
3. Set a risk level :- from day one, decide how much of your trade balance you will take on a single trade. The price of a single transaction should be between 0.5% and 2%. Exceeding that risk level is reckless and unnecessary.
4 Set realistic goals :- set realistic profit goals and risk/reward ratios before making trades that trigger based on your settings. What is the minimum risk/reward you will accept? Many traders are looking for 1:2 risk. For example, if your stop loss is 100 pips and your total risk is 100 euros, your target should be a profit of 200 euros
5 Do your homework :- except for scalpers, who may still have a “feel” for directional bias, all other traders, especially FX traders, must be aware of events such as macroeconomic releases. The financial literacy of successful traders cannot be overemphasized.
Successful demo trading does not guarantee success when you start trading real money once emotions have influenced your decisions. However, a successful demo trade does reassure the trader that the system works.