“By failing to prepare, you are preparing to fail.” —Benjamin Franklin

Last week we talked a about the necessity of having a written trading plan.  This week I want to talk a bit about how we go about putting one together.  It’s easy to not plan your trading.  It’s easy to sit down and trade.  But, a sound plan needs to be obtainable. 

WHERE DO WE START?

We don’t start by just sitting down and writing our plan. We need that introspection stuff I mentioned last week. This comes easier for some of us than others. Back to the working out example in my last article, we need to know where we are before we can figure out where we’re able to go. And once we have that nailed down, we still need to figure out how we’re going to get there. Sure, we all want to make a few million dollars. Who doesn’t. But can we do that? Can it be done?

But more importantly:  Can I do that?

Do I have the skill level necessary to reach my desired goal? If I don’t, how do I get the requisite skill set?  See, in order to get where we want to go we have to figure out if we can get there. We need our plans to be obtainable otherwise we’re setting ourselves up for failure.

BE REALISTIC

I think it’s healthy to push the limits a little, but we should probably have an idea of what the limits are. For example: Is it possible to turn $1,000 into $1,000,000 while trading forex? Yes, of course, it is. Heck, it’s theoretically possible to do that by putting the money in the bank and collecting interest. It’ll just take a long time. So, we ask ourselves; is my goal obtainable with my current skill level and in my desired timeframe?

Let’s narrow it down and come up with a goal. Let’s ask ourselves can I turn $1,000 into $1,000,000 in four months? Wow, now that’s a goal.  But sometimes it’s good to use an absurd illustration to look more closely at reality. 
We ask ourselves again: Can I come up with a plan that I can reasonably expect will be successful that will help me get to my desired result.  In this case, probably not. 

DO THE NUMBERS

I would need a 500% monthly return for those four months. That’s theoretically possible, but not too realistic. Here’s one way to test myself. Did I have a 500% return last month in my trading account (fake money doesn’t count)? Have I ever had a 500% monthly return in my trading account? If yes, then maybe I can. If not, then probably not. So, if I can reasonably expect that I have the ability to turn $1,000 into $1,000,000 in four months, then it’s time to write my plan. Go me! It’s more likely our optimistic planner here will end up with $0,000 after a few days though. This sounds like my plan is likely to fail. And remember, most of us hate failing.

If my goal isn’t reasonable considering my skill level we’ll need to revise one of two things. We’ll either have to make our plan more reasonable or we’ll have to increase our skill level to meet our goal. See, in order to write a comprehensive plan, it’s important to have an obtainable goal.

So, get yourself a reasonable goal. Then figure how you’re going to get to your goal and go for it.

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Do you have a specific trading goal? Please share what works (or hasn’t worked for you).