On Monday, we started talking about the single most important thing that every trader needs if they want to succeed…
A trading plan.
We discussed exactly what a trade plan is, as well as some of the key characteristics that define a solid trading plan.
I also told you that there are 3 keys to a winning trade plan…
And today, we’re going to look at the first key.
Key number one to a winning trading plan is to have your plan in writing!
Now, this may seem a bit arbitrary on its face…
But in a moment you’ll realize just how crucial it really is.
You see, when your plan lives only in your head, it’s too easy for it to change based on whim or emotion.
On the other hand, when your plan is fully thought out and documented in writing, it’s much more concrete.
Your written trading plan should be right beside you every time you actively trade.
That way, you can refer to it when you need to…
And it will be there to guide you no matter what situation you find yourself in.
What’s more, thinking through and physically writing out a comprehensive trade plan will give you time to really think about all the elements involved in trading and how they will impact your life.
Now, I told you before that one of the key characteristics of a good trading plan is that it’s personal.
That means not simply replicating someone else’s trade plan…
Because we all have our own unique personalities, perspectives, and goals.
As such, we need to develop a plan that is tailored to our own situation.
So… how do you ensure that your trade plan is personalized?
You start by asking yourself the following questions (and writing down the answers):
- How much time can I commit to trading?
- What skills do I currently have?
- What skills/knowledge do I lack?
- How much risk can I tolerate?
- How will trading affect my relationships? (Remember that relationships affect emotions, which can greatly affect your trading.)
- Do I have all the necessary tools for trading? (These include an up-to-date computer… a reliable internet connection… an active account with a trading platform… and any trading software or indicators that you will use.)
- What are my personality traits? (Am I greedy? Self-disciplined or compulsive? Patient or impatient? Overly confident or lacking in confidence? Decisive? Emotionally stable? A gambler who is willing to risk money I can’t afford to lose?)
As you can see, these questions will require some real self-reflection and honesty.
But the more honestly you answer these questions, the better positioned you’ll be to create a trading plan that you actually stick with.
Now, we also need to talk about the elements that every written trading plan should include.
First, your trade plan needs to clearly state your goals and objectives.
For example, will you trade for a living, or as a way to supplement your income on the side?
What instruments will you trade?
What timeframes will you trade? For instance, will you be a day trader, a swing trader, a position trader, or a combination of those?
How much will your initial investment be?
More importantly, can you afford to lose that entire initial investment and still provide for your family?
Now, your trading plan also should include your daily trade routine.
Remember, the more structure you have in place for yourself, the more productive your trade sessions will be, since you won’t have to waste time wondering where you should start or what you should do next.
Your daily routine should consider things like time for research…
Time for continuing education…
Being sufficiently rested so you have an alert mind…
A trading environment that’s free from distractions…
And ideal times of day that you will trade and when you will sit out of the market.
Of course, your trading plan must also address the specifics of the strategies you’ll use for the markets you’ll be trading.
That means clear entry rules to determine under what circumstances you’ll enter a trade…
Risk rules that regulate how much you’ll risk on any given trade…
And exit rules that tell you when to close a trade.
Finally, a part of your plan should be to keep detailed records of your daily trading activities.
That means journaling not just your profit and loss numbers, but the specifics of the trades…
The whys and hows of what you did.
Documenting the process will help you learn what works… and what doesn’t… so that you don’t repeat costly mistakes.
In our next installment, we’ll look at key number 2 of a winning trading plan…
But if you’d like to learn more about how Hawkeye can fit into your trade plan to help you optimize your results, then click here to watch a free training video!