Trader’s Trading Plan (Examples and Samples). How to compose
Planning is the key to success in any activity. Trading direction is no exception.
Simply put, if you don’t know where to go, any road will lead to nowhere.
At the initial stage of professional activity, the trader’s trading plan is the first personal document that promotes success. So let’s take a closer look at what this document is made of and how it is formed.
Why a trade plan is important
Trading on stock and currency markets has its own rules and patterns. Contrary to common misconceptions, this is not chaos, but a complex orderly system. Therefore, the most successful traders monitor its work, and create scenarios that reflect different market conditions.
A professional differs from an amateur in that he trades according to the plan and even has several plans that work together. He sticks to them, despite all the temptations that go against the plan.
What’s the point? The answer is simple – to move away from the plan, it means to switch to emotional trading, and it is always a risk. If it worked out today, there is no guarantee that success will continue tomorrow. The trading plan involves abandoning “accidental” profits in favor of long-term prospects. Worse than haphazard trading can be only one thing – to spend time and effort to create a system and not implement it.
An example of a plan
The document is drawn up in each case individually. The trader’s plan starts with motivation and goals.
Many questions and answers may seem trivial, but they must be written down because they are part of important decisions that you will make daily.
To understand the essence, look at the example of the trader’s trading plan for each day:
- Motivation. For me, trading is a means to achieve financial independence. The earned funds will be reinvested in less risky exchange-traded instruments in order to provide conditions for leaving work and turning trading into a full-fledged profession by the age of 40.
- Common goals. Achieve excellence in strategy and achieve a ratio of 7 profitable trades out of 10.
- Specific goals. Achieve 60-70% return on investment in the first quarter, following the trading plan; Write down all your actions in detail.
- Basic trading plan. I’m going to trade Monday to Friday from 10 a.m. to 3:30 p.m. every day. This time I will devote to monitoring the market and finding the most profitable trading signals. Free from work and trade time, I use for self-education in this direction.
- My strengths. I can read candlestick charts and effectively use technical analysis indicators to find trading signals.
- My weaknesses. Because of the lack of discipline, I often open risky trades or trade in conditions of too high volatility, which leads to losses.
- Strategy. I use the strategy because I think it’s working. All quarter I will follow it and mark all the nuances of her work, then properly adjust it (or refuse in favor of another).
- Technical analysis. My strategy is based on the concept of “sniper trade.” I will open trades rarely and only by absolute coincidence on all test indicators.
- Fundamental analysis. I will follow the world news and reports from economic calendars to determine the time of major ebbs and flows. This will create a base for the efficient use of technical analysis indicators.
- Trading planning. If all the conditions are the same, I’ll open a deal. Personal doubts or preferences will not prevent this.
- Risks. The acceptable ratio of losing trades to profitable is 1:3. If my strategy doesn’t deliver this, I stop trading, start looking for the cause of failure, and develop a new strategy.
The plan may consist of several questions and answers to them.
- Why do I do trade?
I realize that trading today is an interesting and profitable direction. Since I am interested in this activity, and I want to earn, I should be constantly trained to improve the level of their knowledge, be persistent in order to achieve the desired result and become a successful businessman. This will allow me to become independent and manage my life on my own.
- My approach to trading?
In the first stage I analyze the situation in the market. As a result of theI define the market trend and its direction.
- What are my goals?
- Create your own business
- Strive for maximum profit;
- Learn new things
- reduce losses.
- At what sites will I trade?
I will temporarily stop my choice in the equity markets.
- What time will I trade?
First, the work schedule will be daytime.
- What tools will I use to do business?
- My list of rules includes:
- tough discipline;
- Making your own individual trading plan;
- Constant trade training and improving your skills;
- Control your emotions;
- making deliberate decisions.
What is the trader’s trading plan
A trading plan is a comprehensive tool for making decisions in trading activities. It regulates what, when and how much to trade. This is an individual guide that is compiled under the temperament and trading style of an individual trader. A trading plan may include anything you find useful, but its backbone always consists of components such as:
- Motivation for trading
- Trading goals
- Capital Management;
- Attitude to personal risks
- Tools and markets
- Trade strategies
- Keeping records.
The trading plan differs from the trading strategy, which defines only the rules of entry and exit from trades.
Simply put, the trading plan is a roadmap, ready technical guidance, a scenario of our behavior in the market. It exists to give us a clear idea of what we are doing, what we are doing and how.
The trader’s plan is a description of successive actions and the psychological part, which can include motivation and goals, behavior and ways to deal with negative situations.
A trading plan can be simple or complex. The trader sets himself a framework of one or another behavior, as well as rules of trading. A plan that is too simple is not enough to successfully implement key rules and strategies in the trading process.
At the same time, it is difficult to adhere to an unnecessarily complex plan. Therefore, it is necessary to develop a neutral option, so that it does not take a long time, but at the same time was sufficiently detailed for introspection.
The main task of the trade plan is to keep the trader calm and relaxed during the trading process, as all market analysis should be done before the start of the trade, not during it. This is the opinion that all professional traders hold.
There is no sample of the trader’s trading plan as such. Each trader should develop the document on his own based on their needs and psychology. It is only possible to look at the examples presented in this article to form the big picture.
As the experience in trading increases, the trader can make changes to his trading plan. However, do not do this during a trading or trading session!
After making a trading plan, as a rule, trade becomes more objective, emotions disappear, and transactions become more selective.
Why do we need a trade plan?
If we look at the issue more broadly, the trade plan is needed to help make logical trading decisions and determine the parameters of ideal trading. A good trading plan will insure against emotional decisions in the midst of trading, despite any temptations. The benefits of the plan:
- Easier trading. Everything is planned in advance, so the trade is conducted without surprises in accordance with the specified parameters.
- More objective decisions. When you need to take profits or close a loss-making deal, emotions will not take us out of balance.
- Best Trade Discipline. Sticking to our plan, we insure ourselves against “accidental” losses.
- More room for improvement. Keeping records allows you to learn from past mistakes and improve your trading strategy.
How to make a plan of trading on the stock exchange
The trader is the only person who will useyour trading plan is in the works. Therefore, the compilation of the trader’s trading plan is completely dependent on psychology and personality analysis, so copy other people’s plans and systems should not be.
The document can be drawn up in any form, both in written and electronic form.
To create a successful trading plan of the trader, you need to follow seven simple steps:
- Determine the motivation.
- Describe the goals.
- Decide how much time to devote to trading.
- Choose a risk-to-earnings ratio.
- Decide what capital will be donated to start trading.
- Determine the market strategy.
- Start a shopping diary.
In addition, it is recommended to include:
- Behavior in case of force majeure. Here you need to write what actions will be taken if, for example, cut off electricity or the Internet, etc.
- Emotional states. Here you should describe the moments when the trader will not work.
- Limits on profits and losses. It is necessary to indicate what the trader will do if he gets a big profit or a series of unprofitable trades.
- Complex trading tactics. If you use multiple strategies at the same time, you need to describe the conditions under which a particular strategy will be involved.
- The sources of information used. For example: “I will review the upcoming news in the economic calendar, an hour before and an hour after the news I will not trade.
Warning: it’s worth remembering that these are just examples. Specific points each trader should form independently, based on the chosen strategy, the general level of risks and personal views on the market.
Motivation. Finding out the motivation is an important step in creating a trade plan. Ask yourself “Why do I want to become a trader?” and then write down your trading expectations.
Goal. Any trade goal should be more than just a statement. The goal is a specific, measurable, relevant, time-limited and achievable value. For example, “I want to increase the deposit amount by 50% over the next 12 months.” At this point you need to choose your style of trading. There are four main styles:
- Long-standing trades. Withhold orders for weeks and months in anticipation that they will make a profit in the long run.
- Swing trading. Hold positions for days or weeks to exploit medium-term market fluctuations.
- Day trading (intraday). Open and close a small number of trades in one trading day.
- Scalping. Open a large number of orders for a few seconds or minutes in an attempt to make a profit during periods of maximum volatility.
From the choice of style depends on the further choice of trading strategies that we will develop.
It’s time. The time we can devote to trading is one of the key parameters. In particular, it is necessary to deal with the question whether it will be possible to trade while at work, or will have to manage transactions early in the morning and late at night. Markets behave differently at different times of the day, so timings are important. It is also necessary to allocate time for preparation for trade, development of strategies, analysis of markets and self-education.
Risk-to-earnings ratio. Before you start trading, you need to deal with the acceptable level of risk – both on individual trades, and within the entire trading strategy. The designation of risk limits is very important. The market is constantly changing, and even the safest financial instruments carry a certain degree of risk. Some traders prefer to take less risk to “feel the soil”, while others are immediately willing to take risks to get the maximum profit from visible signals. The minimum permissible ratio of bad trades in profitable is 1:3. That’s enough to at least make up for the losses.
Capital. At this stage, you need to assess your financial situation to determine what money you can risk. It is categorically forbidden to invest more than we can afford to lose. No loans or money in debt.
Strategy. The overall strategy and features of the trading plan will depend on the market in which we want to trade and specific instruments. For example, trading in the Forex market is different from stock trading. Market behavior, asset volatility, foreign factors that can influence trading – all this is taken into account.
Analysis. For the trading plan to work, it needs to be backed up by analysis. All trades are documented. In this way, we will clearly assess our progress (or regression) and bring out the causal relationship between our actions and trading results. The more details, the better.
- Force majeure.
If you turn off the lights abruptly, I have a laptop with a full charged battery on hand, as well as a tablet with the necessary installed program.
- Limits on profits and losses.
If I reach the profit of 30 points, then on this day I will suspend trading. If there are six losing trades in a row, I will not trade for the next six days.
- Emotional states – when you can not trade.
I won’t work if I’m ill or unwell. If I’m not in the mood, can’t concentrate or upset with something, I won’t trade until this condition goes away.
- Complex trading tactics.
If the market has been trending for the last three days, I use Strategy H, and if the market is flat, I choose Strategy X.
You can use this sample of the trader’s trading plan to compile your personal trading system:
What is my motivation for trading?
Example: “I want to use the financial market opportunities to become financially independent/earn start-up capital to start a business/etc.
How much time can I devote to this?
You need to allocate enough time to follow the deals. The main task is to determine the trading time (morning, day or evening) and take this into account when drawing up a trading strategy.
What are my short, medium- and long-term goals?
Example: “I want to increase my base contribution by 55% over the next 12 months. To achieve this, I plan to use a “sniper shot” strategy and will only open trades when they are 100% consistent with my strategy. I want to be consistent and increase rates if my trading strategy lives up to my initial expectations.
What is my risk-to-profit ratio?
The acceptable ratio of loss-making trades to profitable trades is 1:3. There are several recommendations for wealth management. The first option is to risk 2% of the total amount of the trading deposit on the transaction. The second is to risk absolute values, depending on the predicted accuracy of the trading signal. Simply put, if the deposit – 1000 rubles, then on one transaction I will put 500 rubles, and on another – 5 rubles.
How much money can I allocate?
Example: “I will give out 5000 rubles a month for the first six months. This is the maximum amount I can afford without getting into debt or saving on the most necessary.”
Which markets will I trade in?
Example: “I want to trade on Forex and oil futures. These are volatile markets that I understand and can profit from.”
How will I check my results?
Example: “I will keep a trading diary, make notes on each transaction and make a detailed summary at the end of the trading month. I will record all the successes and failures and the decisions I have made. I will use my records to revise and balance the trading strategy every three months.”
Trading strategy is a key element of success
To enter this market without a clear trading strategy is a bad idea in advance. The trading strategy must be tested for at least a month and prove that it is capable of making a profit.
As part of the development of the trading strategy, you need to pay attention to:
- timeframes (e.g. H1, H4, D1);
- The maximum value of a single trade (e.g. $25 or 5% of a deposit);
- Terms of the opening of the transaction, which will be strictly observed;
- Take-profit and stop-loss parameters.
I’ll be trading from 8 a.m. to noon. All I’m interested in is H1 graphics. I only trade on trend. I am satisfied only with those signals, which are confirmed by RSI, MACD and OBV. My maximum rate is no more than 2% of my current deposit.
Time distribution is half of success
The last thing a trader should do is to constantly think about trading and the good opportunities he misses. It’s really crazy. Checking trading schedules and results every 10-30 minutes can quickly turn into a very ugly habit, which, moreover, does not help much. To avoid such a problem, we include the daily routine in advance in the trading plan and, in particular, work on such moments as:
- The time when we will analyze the markets;
- The time we open trades
- the time when we’re going to make a deputyT-15 in a trade magazine
- time we’ll check the results.
I will look at the charts and analyze the market every morning from 10 a.m. to 12 p.m. If there is an opportunity to trade during this time, I will open the deal. I’ll check the charts and the trading results when I get home from work at 6:30 p.m. I’ll spend a maximum of 30 minutes on it.
Calm and control are our allies
When trading in high-volatility markets, controlling emotions is a prerequisite. Our “trading mind” should always remain calm and relaxed. Trading with emotions is harmful and quickly drains the deposit. Therefore, we completely ignore our emotions and desires for the duration of trading.
An example of the rules you want to include in your trading plan:
- I’ll only trade on a confirmed signal, and I won’t guess.
- I’m not going to chase the trend by trying to squeeze it to the end.
- After each lost deal, I’ll pause for 10 minutes, rest, drink some water and only then go back to trading.
- I will turn each trade into a learning experience and learn from my mistakes.
- I will never trade when drunk, angry, upset, depressed or vice versa, I am in delight and euphoria.
You can use your own calming techniques. Exercise and meditation help many. Others will have enough smoke on the balcony. You can listen to inspirational videos and music before or during a trading session.
Strict adherence to short-term and long-term goals is a priority
Think about what you want to achieve as a trader. Goals should be divided into short-term and long-term goals. To simplify the task, you can first answer the following questions:
- Do I plan to make Forex and binary options trading my main type of earnings?
- What impact can I really expect each month?
- What will I do if my trade proves successful?
Reviewing all trades in a trading journal is a prerequisite
The use of a trade journal is crucial. Entries in the journal will allow you to assess the effectiveness of the trading strategy and make the necessary adjustments in time. There are many ways to do this. You can use screenshots with a trading chart after opening a order; print tables in Word or record data manually. At the end of each month, you need to do a detailed analysis of the most successful and failed trades to identify your weaknesses and strengths and improve trading skills.
What you need to ask yourself to make a trading plan for each day
The trader’s trading plan for each day is made individually, try to answer these questions:
- What emotional states can negatively affect trade?
- Why am I in this direction?
- What tactics would be most appropriate?
- How to act in case of force majeure?
- Am I ready to work if I get sick?
- Which markets will I trade in?
- What analysis tools will I use?
- How much can I risk on one deal?
- What timeframes will I trade on?
- How much time can I devote to trading?
- How will I track my trading success?
There is no magic combination that will immediately give all the cards in hand. These are general recommendations, the implementation of which will allow us to rise above 80-90% of those who merge in the first months. So we get a real chance to make trading our profession.
What’s the bottom line?
A trading plan can really change the whole attitude to trading. In fact, it turns the mentality, shifting priorities from chasing fast money to becoming a professional in a new business. Creating trading plans, we begin to work effectively and reliably insure ourselves against “accidental” losses. Trading on the stock exchange consists of many factors that need constant control. Therefore, following the trading plan is a vital part of this business.