What is a Trading Plan?

If you are asking what is a Trading Plan, then look no further. I’m going to share with you what exactly a Trading Plan is and how simple it is to make one. Once you have it you’ll, certainly start seeing an improvement in the quality of trade setups you take.

What is a Trading Plan and what is its purpose?

A Trading Plan is a very simple document. It can be written down on anything. A post-it, Word document, Excel spreadsheet, it doesn’t really matter where its written down. What is important is what written in your plan. 

The first thing you want to write in your plan is what type of setup you are looking to trade. Maybe you only like to trade hammer patterns. Or perhaps you are very good at trading 15-minute breakout strategies. Let’s write that one down. Now what’s next?

The Rules

So we are going to trade 15-minute breakouts. But we are not going to trade every single 15-minute breakout we see right? We want to take the best looking patterns. So the next part of your Trading Plan is to write down all the rules for your breakout strategy. Let’s take a look at a sample:

  • Bullish GnG (Gap and Go)
  • Read off the 5-minute chart
  • Stock has gapped up > 2% today
  • The close of yesterday is >0.1%
  • Lots of pre-market volume
  • Do┬ánot get into a trade before 9:45 and no later than 10:15
  • If the stock has moved more than its ATR in the first 15 minutes, do not trade it
  • Entry order at the breakout price
  • Stop order low of the day
  • Target should be a risk to reward ratio of 1:2
  • Trail your stop on the 15-minute chart
  • Be completely out of the position by 2:00 PM

There, you have written down the type of trades you like to trade and the rules to take the trade. You’ve written your Trading Plan. Keep it simple and clean. If you can’t follow your own plan because it’s too difficult, then how can you trade it? Now for the hardest part…

FOLLOW YOUR PLAN!

This is where almost all traders fail. They either don’t have a plan and just trade because they think they will get rich quick, or they have somewhat of a plan written down somewhere, but never follow it. The best traders and the profitable traders ALL have trading plans, and they ALWAYS follow it. 

Follow your plan. Have your plan in front of you when you are trading. Find a simple way to be able to make your plan into a checklist. Just like pilots before taking an airplane off. They’ve done it 1000’s times but they still have a checklist and follow it. If everything is okay, then you take the trade. 

Review your plan

After a while, it’s time to review your plan. Sometimes you need to make some changes to fine tune your strategy. Hopefully you’ve made somewhat of a trading journal and logged your trading activities. This will certainly help when it comes time to review your Trading Plan. 

For me, I’ve automated my Trading Plans and have robot’s take the trade for me. I don’t actually do any of trading anymore, I just manage my strategies Trading Plans and make changes to them when necessary. I journal all the trades my robot’s take here. This makes it easier for me to review and improve my strategies. 

If you have your trading plan and you follow it, I promise you, you will see a vast improvement in your trading. You’ll start taking higher quality trades since you’ve built a checklist. Review your plan once a month to make sure it’s still profitable. Sometimes you might need to make small tweaks to your plan. Most importantly, follow your plan. 

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