Trading Plan Winning PlanMar 30, 2017
Do you routinely analyze the market, do setups and execute your trades? How often it is?
After your trades are executed, how do you manage it? Let’s say if the markets go against your plan, do you have any backup plan ready or you would later put up a plan based on your feeling or gut? Why such a question? It’s because more often than not, we tend to overlook the power of the basic which has influential determinant role on your success rate in becoming a profitable trader. Simply by overlooking the basic, you are understating the impact of risk.
As Benjamin Franklin quoted, “By failing to prepare, you are preparing to fail”, and for those who are seriously committed to be successful in this business, must bear in mind that a plan is your cornerstone in building wealth. In other words, without a plan, what is the measure of your harvest? Ask any business people or traders who make money consistently and you will hear, "methodically follow a written plan, or fail."
If you have a written trading plans ready, congratulations! You are geared to adventure the predestined journey. Success could be beyond the horizon or short-lived if your plan uses flawed techniques or inadequately prepared; however, it is not too bad because you have positioned an allowance for planning and modifying your course. By documenting the process, helps you to become a better trader each time as you learn on what works and how to avoid repeating costly mistakes. If you don’t documented it, anything intangible is easily lost in a busy mind. You may say this is too much work now. What if there is too much disaster later? You don’t see it coming, impossible.
A real story from a friend about his winning glory days. He was a happy-go- lucky trader and boasted as much as he totally relies on trading software, and kept winning. Until the day, his brother called to advise him to stop-loss. He was jokingly ignored because the “sweet baby” software programmed he got, never once failed and so continued his tennis game. Unfortunately, luck never comes to stay. He almost risks losing his pant.
How time flies! Many years ago, when I was a newbie, I spent a lot of money and time to find a magical short-cut. And even up to the extreme of seeking for a secret code and auspicious days.Why? Not because I was superstitious, it was just the frustrated and despaired me trying to recover the losses - my mind went disordered and life became complicated. What a sad reality? Everything just crumbled. Why not? It is not fun to lose a lot of money and no way it’s funny to repeat costly mistake. In this scenario, only one advice works - “avoid such circumstances”. When in the situation of horse and rabbit stew, or market blackout, do you think there is a formula or a way to forecast it?
Again, it is better to be safe than sorry, so keep in mind that:
- A plan is about a strategy on what to do and how to get you there - your desired destination. If you are asking for a short-cut, the plan is the short-cut. The characteristic of business is “give and take,” and plan is made for a period, not for forever unless you don’t want to make any necessary changes, nor it is in full provision of absolute guarantee of success, alternatively the written plan benefited you by eliminated one major roadblock.
FOREX trading can be confusing to any newbie because there is nothing physical like other business and it is not risk free. Since confusion itself is intangible, the best course and the most cost effective are learning from others’ trials and errors as answers are readily available.
Guidelines for preparing a plan:
a. You have to know where to look, to tell what to look.
b. Once you know where, you can then ascertain which one it will be and act accordingly.
c. Bear in mind that plan has its life span - it changes with market conditions.
d. It is adjusts as the trader's skill level improves.
e. A plan should be re-evaluated once the market has closed.
f. Layout your plan for next trading.
Tips -The necessary elements for making a good trading plan easy:
1. Set Exit Rules
The most common or popular mistake is paying too little attention on where and when to exit. Many traders concentrate more than 90% effort in looking to enter into the market randomly. This could be due to have no knowledge on - when to exit or to take stop-loss when the trade goes against them. Also partly could be they may not want to take a loss. This is a mistake, you have to get over it or you would not get there as a trader. When your stop gets hit, it means you are wrong and that is still okay because you are trading with a preset plan. Don't take it harshly. In actual fact, many professional traders lose more trades than win, and yet still end up making profits because they manage the money and limit losses.
Before you enter a trade, you should know where your exits are:
Stop loss - Know what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count.
Profit target - Each trade should have a profit target. Once you get there you may decide to either fully exit the trade or partially exit a portion of your position
Break even - You must move your stop loss to break even when the market has move to a certain point from your entry. By practicing this will gradually increase you odd in winning in long run.
- Risk limit - Never risk more than a set percentage of your portfolio on any trade.
2. Set Risk Level
Check your portfolio to know how much risk per trade is considerably alright. To be on the safe zone, the percentage can range anywhere from around 1% to 3% of your portfolio on a given trading day. Meaning if you lose that amount at any point in the day, you get out and stay out depending on your trading style and risk tolerance. If things aren't going your way, better to keep powder dry for another fight. Losing is wasting resources.
3. Mental Preparation
First thing first, ask yourself, how do you feel, did you sleep well, do you feel up to the challenge today? Being mentally prepared carries the same importance as financially prepared. Knowing yourself is critical for the trading process and the best approach is to be totally honest with yourself, especially on your weaknesses whether you are under the influence of emotion distraction, preoccupied or your hands are full. If you are not emotionally and psychologically ready to embark on the market battle, it is better to call it a day. Of course, unless you are considering Rio Trade, then you are at different category.
How to prepare mentally? You may follow what many traders do - to repetitively practice a market mantra before the day begins to get geared ready and re-wire mindset for successful trading. Don’t have; create one that puts you in the trading zone.
As Benjamin Franklin saying goes, “There are three things extremely hard: steel, a diamond and to know one’s self”, and the solution to is be persistent in practice. Practice makes perfect, practice makes permanent.
4. Trade Preparation
Whatever trading system and technical analysis program you use, make sure you do these:
Label the major and minor Support and Resistance levels
Set alerts for Entry and Exit signals
- Make sure all signals can be easily seen - with a clear visual or auditory sight. Distractions can be costly so clear your trading area.
5. Skill Assessment
You have learned about forex trading by reading, knowing the terminology and the four major currency pairs:
EUR/USD : Euro and U.S. dollar
USD/JPY : U.S. dollar and Japanese yen
GBP/USD : British pound sterling and U.S. dollar
- USD/CHF : U.S. dollar and Swiss franc
Now it is going to be the show time, are you ready to trade? Already tested your system by paper trading it? Feel confidence that it works? Can you follow your signals without hesitation? Always do your assessment before jump into the real market with the real money.
6. Set Goals
Before you enter a trade, set your realistic profit targets and risk/reward ratios. Many traders will not take a trade unless the potential profit is at least two times greater than the risk. Meaning, if your stop loss is a $1 loss, your goal should be a $2-$3 profit. And re-assess them regularly.
7. Perform a Post-Mortem
After each trading day, perform your post mortem, you have to know where to look, to tell what to look, which is the foremost step of plan preparation. The objective is to find out on what went wrong and prevent the mistake from happening again. If it was a profitable trade, what led it? Did something change suddenly? If something did change, did you recognize the impact and how did you react? Why did you react that way? Write down you conclusions in your trading journal for your next trading plan.
8. Do Your Homework
You have to know what is going on around the world before the market opens. Find out what economic data is due out and when, new policy or amendment implemented, the new interest rate, and elements like BOP, GST, or football or super bowl, just watch out for a signal that triggered by events and people. Write your conclusion and draw your action - that’s your trading strategy. If you only trade on probabilities, then wait for the report to be released, just like most experience traders do, they wait.
FOREX markets are real, not a mere imaginary internet market place, the netizens are real people too. Your real intention is to make profit from the trade, so do your homework. Your agenda should be to become a successful and long-term serial trader who continues to get on trading, not to be a “one-and- done” trader. The best practice is to trade like experience traders, not gamblers.
9. Records keeping
We do “recordkeeping” daily and weekly on our trading plans, thoughts, and activities to be well prepared for contingencies. Our recordkeeping journal is a in simple format, not like a professional financial accounting papers, exquisite standard of practice, and the auditor is not anybody else, but ourselves. The more we practice recording, the more useful it becomes to us to better diagnose a creep with the right solutions.
10. Daily Trade Plan and Evaluation
For novice traders, I recommend you to hand-written your daily performance and account balance sheet. Make this a habit to scrutinize your data at the end of a trading session. This is the method for you to easily identify your strengths and opportunities, and at the same time be better aware of the blind spots existence - the weaknesses and threats. In addition, you will learn to recognize the characteristics of different currency pairs, their trading times and chart patterns.
Trade Plan should be competence to be utilized as a trader menu for various market activities on a trading session. A good and potent evaluation not only take regards of what went right and what went wrong, it also taken into account record of wins and losses. When collectively put to use, traders may gain insight on the direction of their market acumen and development.
11. Record your Databank
All good traders keep their trading records. As their record data increases, so is the proficiency in winning. The record shows why and how they win, and vice versa. The information required for you to build your own Databank basically are:
Entry and Exit of each trade
Support and Resistance levels
Daily opening range
Market Open and Close for the day
- Record comments - don't repeat unnecessary mistakes
Analyse profit or loss for a particular system
Draw-downs (amounts lost per trade using a trading system)
Average time per trade (to calculate trade efficiency)
- To compare to a buy-and-hold strategy
12. Learn to have The Characteristics of Successful Trader
Successful traders’ characteristics:
- Have absolute control over their emotions - never get too elated over a win or too depressed over a loss.
- Do not panic - they make evolutionary adjustments, not revolutionary changes to their trading style.
- Do not flinch at making the decision to take a loss, never let losses ride, and never add to losing trades.
- Treat trading as business and not a hobby.
- Are prepared for all eventualities on any given trading day. Successful traders come to work with a complete plan that includes many contingencies and their hope on the result.
- Trade only with money you can afford to lose.
- Spend at least as much time focusing on money management as on a trading method.
- “Listen” to the markets. Don’t try to impose your will on the market like non-successful traders.
In your own trading program you should have predetermined answers to:
- Price opens sharply higher or lower?
- The market is very quite or volatile?
- The market makes new high or new low?
- The market goes up early and reverses later?
- The market goes down early and reverses later?
12. Keep It Simple
Many traders who fail to follow a plan often toss away a plan because they feel it “doesn’t work” and then move on to another plan. They feel the plan must be complicated in order to succeed and become drawn into a world of increasingly obscure and complicated technique, use super-secret indicators, and keep burrowing deeper into the earth as if searching for some secret Both complicated technique and simple techniques can work. If you faced difficulty while using simple methods, it could be either the plan was not a good one or not properly executed.
This is a brief overview of how you can plan your trades and it is good to start out with a trading plan when you are new and learning to trade. A trading plan is necessary for training and to make sure you are staying on track, every trader should learn to build one and use it until they really know what they’re doing.
Having a plan is not a guarantee of success. A specific plan give the trader confidence that the system they are going to use actually works which means deciding on a system is less important than gaining enough skill- to make trades without second guessing or doubting the decision.
There is no way to guarantee that a trade will make money. There is no such thing as winning without losing. Professional traders know that the odds are in their favor before they enter a trade. The trader's chances are based on their skill and system of winning and losing. To lose is to win, when a trader let profits ride and cutting losses short, on the surface a trader may lose some battles, but eventually win the war. Unfortunately, for those who do the opposite, never make money.
Last but not least, if you are serious about making profits from this trade, you must write your plan and roll it as your measuring stick during trading period. Take the pointers, makes it yours, and be a consistent.
Pointers to take home:
By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders who do the opposite, which is why they never make money.
- Trading is a business for traders who win consistently. It's not guaranteed that you will make money, but having a plan is crucial to become consistently successful and survive in the trading arena.
I wish you the best of luck on your journey in trading, hope to see you in the market!