Trading Plans Don't Work! Planning begins as early as kindergarten; sooner or later the teacher goes around the classroom and asks each student, "What do you want to be when you grow up".
This is the beginning of our first plan.
Throughout the years we tend to change our plan of what we want to do as a career.
Most of us have set a career goal by the time we reach high school age.
Now that you have tentatively decided what you're going to do when you grow up, you must now come up with a plan to achieve your goal.
As we progress towards our career goal there is a tendency to revise our plan on how to achieve this goal.
We all know situations change and we must evaluate what is the best course of action to attain our goal.
A little reflection shows that we have made and revised plans before, and a trading plan is no different.
However more scrutiny should go into your trading plan, because no one cares more about your money than you! Now, in light of the introduction, let me explain what the title means.
Trading plans don't work, unless we continually evaluate our goals and revise our plan to meet these new goals, or at least make sure our plan is keeping us on track to meet our original goals.
I know every educator out there has told you that you need to have a trading plan, and this is true.
How do you obtain a trading plan? My suggestion is to analyze exactly what your trading goals are and make a list of guidelines to build your personal trading plan and learn the key to keep it working for you.
One thing most traders don't plan for in their trading is their own mindset.
In order to give yourself an edge in this game; learn about how your own habits can affect your trading.
Using self analysis psychology, through the use of a trading journal can be enlightening and will explain some of the pitfalls of your trading.
This technique is especially useful when it comes time to exit a trade.
However a trading journal is the subject of a future article.
Use the information outlined below to get started the right way; with a plan and a goal! Plan Your Trade: In order to make the best trading decision possible you must plan your trade.
Planning your trade does not have to be complex, but it must take into consideration your risk tolerance and trading goals.
This is also when you will determine your trigger.
Will you use moving average crossover, such as the 20 period crossing up through the 50 period or a fundamental indicator like the (P/E) price to earnings ratio? Whatever indicator you use to enter a trade be sure to test its reliability.
An effective trading plan will also determine when you will place your trades.
Most traders do not trade every day! For example placing a trade on Monday morning could prove devastating to your account, as Monday mornings can be quite volatile.
There is a saying that has circulated around Wall Street for decades regarding new traders.
This saying is directed at the first hour of the trading day also known as "amateur hour" because most new traders are so excited from the research they did the night before or the recommend they received.
They're so anxious to enter a trade because the research or recommend was sure to go in their direction.
Usually it's best to wait until after the first hour and the market has settled down.
Another possible time to enter is before the close.
Listed below are trading plan guidelines,these should give you a starting point of what should be included in your plan.
Learn your trading strategy thoroughly before using it to trade! Trading Plan Summary: 1.
Plan your trade 2.
Trade your plan 3.
What is your trading time frame? Day trade, swing trade, or investment.
4.
When will you do research? Before the bell, During the trading day, or After the close.
5.
How much capital can I assign to my trading business? 6.
Business hours? 7.
Reward to risk tolerance? Minimum 2:1 8.
Determine exit strategy I would like to leave you with this thought, "Without a plan you are not trading, you are gambling!" Best of Trades.