A reasonable trading plan is the starting point of success
A reasonable trading plan is the starting point of success
An excellent investor never trades aimlessly. Before making a trade, they always have their own trading plan to help them identify trading opportunities and avoid chasing market trends. Developing and executing a trading plan is an important component of trading success. So, how do you develop and execute a trading plan? To answer this question, I think it is necessary to understand the following concepts:
What is the meaning and characteristics of a trading plan? What elements should a qualified trading plan include? What obstacles are there to executing the plan?
1.Meaning of a trading plan
A trading plan refers to the measures, methods, and steps that a trader develops to achieve trading goals within a certain period of time. As the author of "High Probability Trading" said, a trading plan is like a business plan for a merchant, and the content of the plan must be clear and concise. Although it may not necessarily be in writing, it is recommended that traders use written form to better follow the plan and facilitate regular evaluation.
1.Characteristics of a trading plan
First of all, a plan must be forward-looking. We develop a trading plan based on our anticipation of the future, so before making a plan, we must have a clear understanding of the various possible scenarios and have a correct idea of the trading goals, measures, and methods. Therefore, without foresight, there is no plan, and foresight is the main characteristic of a plan.
Secondly, a plan must be procedural. In developing a trading plan, there must be a meticulous time schedule and requirements for what to do first and what to do later. When executing the trading plan, there should be stages and priorities. Therefore, in developing a trading plan, there must be time requirements and corresponding arrangements for each stage to reflect the meticulousness and procedural nature of the plan.
1.Components of a Trading Plan:
Which markets will you trade in?
What analysis tools will you use?
What is your market analysis before entering the trade?
What are the entry requirements?
How much risk will you take on?
What is your exit strategy?
What are your expected trade duration and performance?
What possible market developments could occur?
How will you achieve your trading goals?
Choosing the markets to trade in depends on your capital and trading strategy. For example, if you are a trend trader, you cannot choose to trade in volatile markets. Of course, the prerequisite for this work is to establish your own trading strategy in advance.
Which analysis tool to use
When it comes to analysis tools, perhaps you're using some kind of technical or fundamental analysis, but regardless of which one you use, you need to understand the principles behind it and conduct sufficient research and testing on its feasibility and success rate before applying it.
What is the market analysis for your entry into trading?
Through analysis, you need to understand what the current state of the market is and whether it meets your trading conditions. What are your expectations for the future direction of the market? What do others think about the current situation?
What are the entry trading conditions?
The entry trading condition, also known as a trading signal, must be based on a firm, logical theoretical foundation, must be clear and unique, and cannot be ambiguous. Like the analysis method, it also needs to be thoroughly evaluated and tested. You need to understand the development of successful trading signals and the development of failed trading signals.
How much risk are you willing to take?
In trading, the most important thing is to learn to protect yourself. Therefore, before any trade, you must be clear about how much capital you will invest in this trade and how much risk you can bear. In other words, if you make a wrong judgment, what is the maximum loss you can tolerate? Can you bear the losses caused by a failed trade? Will it have a negative impact on you?
What is your exit strategy?
The exit strategy includes three aspects: a stop-loss strategy, which is the exit strategy for misjudgment; a profit-taking strategy, which is the exit strategy for successfully completing a trade; and a strategy for exiting when the price does not move as you expected over a period of time. The most difficult part is the formulation and execution of the stop-loss strategy. The premise for setting a stop-loss is to understand when your judgment is wrong, so we mentioned earlier that you must understand the principles of the judgment tool. The difficulty of executing a stop-loss is because it involves denying your previous judgment and accepting the reality of financial losses, which is obviously a huge challenge for traders. Therefore, executing a stop-loss is far more difficult than executing a profit-taking strategy.
What are your expected operation time and performance?
When you start a trade, you should have an expectation of the time and price movement target for its future development, which is crucial for your future monitoring.
What are the possible developments in the market?
We know that market development is uncertain, so we must have a foresight of how many possibilities there may be in the future. On the one hand, this involves your capital management. If you can always keep the uncertainty of market development in mind, then you will never fully invest because no one can ensure that accidents will not happen. On the other hand, multiple expectations can reduce the possibility of emotional and sudden decision-making trades.
How to achieve trading goals
In this trading task, do you plan to increase the trading results by adding positions? If so, under what circumstances do you plan to add positions? If adding positions fails, what kind of exit strategy will you adopt? Will you exit the trade with a partial or full position?
After clarifying and completing the above work, the trading plan is basically completed. However, this is only a good start for a trade. The most important work is to resolutely and quickly execute the trading plan you have formulated. Although some traders have never formulated a trading plan...
An excellent investor never trades aimlessly. Before making a trade, they always have their own trading plan to help them identify trading opportunities and avoid chasing market trends. Developing and executing a trading plan is an important component of trading success. So, how do you develop and execute a trading plan? To answer this question, I think it is necessary to understand the following concepts:
What is the meaning and characteristics of a trading plan? What elements should a qualified trading plan include? What obstacles are there to executing the plan?
1.Meaning of a trading plan
A trading plan refers to the measures, methods, and steps that a trader develops to achieve trading goals within a certain period of time. As the author of "High Probability Trading" said, a trading plan is like a business plan for a merchant, and the content of the plan must be clear and concise. Although it may not necessarily be in writing, it is recommended that traders use written form to better follow the plan and facilitate regular evaluation.
1.Characteristics of a trading plan
First of all, a plan must be forward-looking. We develop a trading plan based on our anticipation of the future, so before making a plan, we must have a clear understanding of the various possible scenarios and have a correct idea of the trading goals, measures, and methods. Therefore, without foresight, there is no plan, and foresight is the main characteristic of a plan.
Secondly, a plan must be procedural. In developing a trading plan, there must be a meticulous time schedule and requirements for what to do first and what to do later. When executing the trading plan, there should be stages and priorities. Therefore, in developing a trading plan, there must be time requirements and corresponding arrangements for each stage to reflect the meticulousness and procedural nature of the plan.
1.Components of a Trading Plan:
Which markets will you trade in?
What analysis tools will you use?
What is your market analysis before entering the trade?
What are the entry requirements?
How much risk will you take on?
What is your exit strategy?
What are your expected trade duration and performance?
What possible market developments could occur?
How will you achieve your trading goals?
Choosing the markets to trade in depends on your capital and trading strategy. For example, if you are a trend trader, you cannot choose to trade in volatile markets. Of course, the prerequisite for this work is to establish your own trading strategy in advance.
Which analysis tool to use
When it comes to analysis tools, perhaps you're using some kind of technical or fundamental analysis, but regardless of which one you use, you need to understand the principles behind it and conduct sufficient research and testing on its feasibility and success rate before applying it.
What is the market analysis for your entry into trading?
Through analysis, you need to understand what the current state of the market is and whether it meets your trading conditions. What are your expectations for the future direction of the market? What do others think about the current situation?
What are the entry trading conditions?
The entry trading condition, also known as a trading signal, must be based on a firm, logical theoretical foundation, must be clear and unique, and cannot be ambiguous. Like the analysis method, it also needs to be thoroughly evaluated and tested. You need to understand the development of successful trading signals and the development of failed trading signals.
How much risk are you willing to take?
In trading, the most important thing is to learn to protect yourself. Therefore, before any trade, you must be clear about how much capital you will invest in this trade and how much risk you can bear. In other words, if you make a wrong judgment, what is the maximum loss you can tolerate? Can you bear the losses caused by a failed trade? Will it have a negative impact on you?
What is your exit strategy?
The exit strategy includes three aspects: a stop-loss strategy, which is the exit strategy for misjudgment; a profit-taking strategy, which is the exit strategy for successfully completing a trade; and a strategy for exiting when the price does not move as you expected over a period of time. The most difficult part is the formulation and execution of the stop-loss strategy. The premise for setting a stop-loss is to understand when your judgment is wrong, so we mentioned earlier that you must understand the principles of the judgment tool. The difficulty of executing a stop-loss is because it involves denying your previous judgment and accepting the reality of financial losses, which is obviously a huge challenge for traders. Therefore, executing a stop-loss is far more difficult than executing a profit-taking strategy.
What are your expected operation time and performance?
When you start a trade, you should have an expectation of the time and price movement target for its future development, which is crucial for your future monitoring.
What are the possible developments in the market?
We know that market development is uncertain, so we must have a foresight of how many possibilities there may be in the future. On the one hand, this involves your capital management. If you can always keep the uncertainty of market development in mind, then you will never fully invest because no one can ensure that accidents will not happen. On the other hand, multiple expectations can reduce the possibility of emotional and sudden decision-making trades.
How to achieve trading goals
In this trading task, do you plan to increase the trading results by adding positions? If so, under what circumstances do you plan to add positions? If adding positions fails, what kind of exit strategy will you adopt? Will you exit the trade with a partial or full position?
After clarifying and completing the above work, the trading plan is basically completed. However, this is only a good start for a trade. The most important work is to resolutely and quickly execute the trading plan you have formulated. Although some traders have never formulated a trading plan...
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