A good trading plan is what successful profitable traders utilise to minimize their chances of loss in their trading. So what is a trading plan?
First of all a trading plan is a lot more than just a set of instructions that you have written down for yourself. A good trading plan is something definite that the trader can consult rather than just relying on their gut feelings. This is because their trading plans have also taken into account the trader’s own personal behavior and personality. That’s why when creating a trading plan, a trader usually commences with a short time period of self-reflection.
It sounds, like psychology but recognising one self’s habits and behaviour is the keystone to the making of a successful trading plan. A trader should know what his goals are, and know what he is capable of accomplishing. Armed with the knowledge that he has learned about the marketplace and how he has reacted to particular situations in the past. All of these factors go into making a successful trading plan.
Secondly a trader typically centres his trading plan on a specific market or commodity. Usually, this market is in a area that he has acquired prior knowledge about or is one he is particularly interested in. This is important because knowing about which area you will be eventually be trading in is crucial.
Any changes that may occur in market conditions and any upcoming trends that appear will always be noticed by a trader who is skilled in locating these changes and trends. This can often mean the difference between becoming bankrupt or being exceedingly profitable.
Lastly knowing your own personality is important. This will assist you to plan your entry and exit strategies into the specific market that you are particularly interested in. These entry strategies will be governed by what the price of stock is and at what time you start buying into a market. Exit strategies are just the reverse, basically differentiating a point where you begin to start selling shares whether for profit or loss.
Because the market is perpetually shifting, having clear-cut and formed strategies that match your personality is important. For instance a trader who likes taking risks would aim for larger margins of change while a trader who likes to play it safe would therefore go with lower margins. So always try to be comfortable with the strategies you make, since you are the one who ultimately has to follow them.
It all sounds pretty simple devising a trading plan, but in reality it’s a great deal of work, but the effort and the potential profits make it worth the time and trouble that you put into your trading plan.
Chris Strudwick is a successful share trader on the Australian Stock Market Visit his weblogs at both http://www.asxnewbie.com AND http://www.aussie-retiree.com/ for more free articles and useful information about the stock market.
