A trading plan is a set of guidelines that will help traders to achieve their goals. The trading plan is useful to help you focus on planning and implementing trading strategies. According to Investopedia, a trading plan outlines how a trader will find and execute trades.
For a trader, you need a trading plan to obtain consistent trading results.
Consistent trading results are more important than fantastic but inconsistent results. There are still many traders who think that trading plans can be made quickly and instantly, even traders tend to ignore them.
The best trading plan is designed based on experience, using logical models and methodologies, and following the objectives to be achieved.
One of the success factors in trading is discipline. You can increase discipline by making a trading plan correctly and objectively.
By making a trading plan, a trader has been responsible for himself if the trading results are not as expected. A trader can immediately take the best step on his trading account without hesitation and panic if the direction of market price movements is contrary to predictions.
Let’s look at 5 important things that you should consider in making a trading plan:
Determine the strategy for entry
You can take the best way or technique from your experience and apply various entry methods to various market conditions.
For example, you choose a reversal pin bar in trending market conditions with supporting indicators moving average. So, you have to convince yourself that the conditions are the best and most accurate for entry. Besides, you have to understand the market situation and market sentiment well.
Determine the risk/reward ratio
You must apply this risk management scenario to every position you take. Make sure you understand correctly about position sizing which is the most important part in determining risk.
Determine the position size based on stop-loss target
Position size can change according to the risk of stop loss per trade that we specify. You should determine the risk per trade first before setting a stop loss level.
Determine exit or take a profit strategy
You should determine the target’s exit before entry, according to the reward you agreed upon.
You should not specify an exit level when a trade is in progress, because our emotions tend to be involved when we trade without an exit target.
Keep journals for evaluation
We recommend you to write notes for evaluating your previous trading. Thus, you can learn the advantages and disadvantages of your trading. Also, you can improve the quality of your trading and get maximum profit.