Getting into trading is an exhilarating adventure. All Traders wish to achieve their first successes in the financial markets as quickly as possible. But be careful not to skip the steps. Trading without a roadmap can indeed be particularly risky. The Trader who wishes to succeed must create a profitable Trading Plan. Let’s see how.
Do not confuse Trading Plan and Trading Strategy
It would not occur to an entrepreneur to embark on the creation of a business without carrying out a Business Plan . However, online trading must be approached with the same mindset: it must be thought of as a business. To hope to grow, it is crucial to know where to go and how to do it.
Like the Business Plan, a Trading Plan is a roadmap that concretely specifies everything the Trader intends to do. Sometimes called a speculation plan , it takes the form of a detailed list of everything the investor wishes to do in terms of trading. It also specifies the means it will use to achieve its objectives.
By giving meaning to Trading, the Trading Plan makes it possible to establish a routine and adopt good habits from the very first trades. It is therefore particularly suitable for beginner traders . This is especially true in the case of Proprietary Traders , who must make their own decisions without the benefit of feedback from an employer.
Experienced Traders also benefit from using a Trading Plan. It allows them to take a step back and question their goals and strategies, especially if the latter have turned out to be losers.
Moreover, the Trading Plan is often mistakenly confused with the Trading Strategy . But these are two different things. A Trading strategy designates the chosen entry and exit rules as well as the Money Management adopted by the Trader.
In fact, the chosen strategy is part of the Trading Plan. It is therefore not limited to the trading rules adopted. The many elements that compose it make it possible to achieve the objectives set. As soon as the Trader has doubts, makes mistakes or loses sight of what he should do, he can rely on his Trading Plan to start off on a good footing.
How to build a good Trading Plan?
To be able to succeed in the long term on the financial markets , a Trader must be able to create a trading plan that is both simple and effective. To help you, here is a checklist of all the questions that a proper Trading Plan should answer.
#01 – What are the long-term trading objectives?
It is a question of formalizing now the reasons for which you are trading. These long-term objectives must be clear and precise. For example: ensure a regular annuity of X euros every month. As much as possible, these objectives should be accompanied by a delimited time horizon (6 months, 1 year, 3 years, etc.).
#02 – On which markets to trade?
To achieve these objectives, it is important to target one or more financial markets on which you will trade. Not all markets require the same strategies. Some have their specificities that should be mastered. This is the case of Forex Trading or the CFD market in particular.
#03 – Which financial products should be favored on each market?
Specializing in specific values and products greatly increases your chances of success. For example, if you are trading in the currency market , it is a good idea to get used to regularly trading the same currency pairs (EUR/USD, EUR/JPY, etc.).
#04 – On what unit of time to trade?
It is important to choose the working time unit that best suits your trading. It corresponds to the period during which you open and close your trades: rather scalping per minute, day trading per hour, or position trading per week?
#05 – Which Trading Strategy to use?
After testing different financial strategies, you should choose the one that suits you best. Note here the entry and exit rules adopted, as well as the Money Management techniques chosen.
#06 – Which trading routine to adopt?
Setting a routine to prepare to trade is essential. It will be used at each trading session. This includes preparing your workstation, your various stock charts and their scales. It is the same for the post-session, where you will, for example, write down your various results in a diary.
#07 – How to improve the Trading technique?
The Trading Plan should accompany you over time. It is therefore interesting to note here everything that will allow you to progress: books to read, training to follow, lessons to learn, etc.