Trading Plan Template

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Failing To Plan Is Planning To Fail. Create A Trading Plan Today!

 

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    Trading Plan Template

    Please download a free trading plan template that includes an example of a completed trading plan and white space for you to fill in your own trading plans.

Having a trading plan is one of the easiest steps that you can take to improve the profitability and consistency of your trading but yet there are numerous traders who have never taken the time to write one down.

If you take an afternoon away from the charts to write your trading plan you will find that your trading becomes less stressful, more enjoyable and ultimately more profitable. The biggest benefit that a trading plan will provide is that it removes the decision-making process during the heat of battle.

Goals

The first component of our trading plan will be to write out what we expect to achieve from our trading.

Start with realistic expectations. For instance, a monthly goal might be to make 2.5% percent profit on your account with no more than a 2.5% monthly draw-down.

That may seem conservative but as I pointed out when writing about the realistic rate of return for a trading strategy, if you can achieve that you are on your way to being a very successful and wealthy trader. Alternatively your goal might be to not lose money for a Month.

If you are already consistently profitable your goal might be to reduce your weekly monthly draw-down while keeping your returns the same. Whatever your goal may be, it’s important to make it specific and measurable.

Without goals being specific, you will have a hard time evaluating whether you are achieving them.

It is also worth giving yourself daily and weekly goals as well. These should be unrelated to profitability but focused on the processes instead. For example, a daily goal might be to read at least one chapter of a trading book.

A weekly goal might be to study your trading journal before next week and make notes for improvement.

What Type of Trader Would You like To Be?

Once your trading plan has clearly defined goals you need to start considering how you are going to achieve them. The first thing you need to decide upon is what type of trader you’d like to be.

There are some serious considerations required at this stage of the trading plan. For example, if you have a full-time job don’t write a trading plan geared towards day-trading.

Think about what your strengths and weaknesses are… Are you good at identifying Chart patterns or candlestick patterns such as the dragonfly and gravestone doji or inside and outside bar patterns? Are you good at reading financial statements? Do you prefer getting in and out of positions quickly, or do you prefer having smaller positions with wider stop-losses?

Think about the previous trades that you have made and try to remember what you found easy and what you have found hard.

When writing out what type of trader you would like to be, make sure to give yourself an easier chance of replicating what you have previously found easy.

There are 4 main types of trader; Scalping, day-trading, Swing trading and position trading.

Ask a close friend or family member to tell you what they think your strengths and weaknesses are. If they tell you that you are not good under pressure….don’t plan on becoming a scalper!

If they tell you that you are highly disciplined, good for you…you might want to plan on being a day-trader.

If you are analytical it might be worth planning on being a swing or position trader.

Which Markets Will You Trade?

The type of trader you plan on becoming will determine to some extent the markets that you are able to trade.

A position trader will be able to look at a large number of markets whereas a scalper might only have the time to look at one.

As you probably know, I trade mechanical trading strategies and this enables me to analyse a wide range of markets in a very short time. If you are a discretionary trader you will obviously need to focus on a more refined number of markets.

Think how accessible the markets you plan on trading are too. If you want to trade American Penny Stocks, will you be able to access charts for them? Are the spreads and commissions too large for your account?

If you are spread-betting you might find that the spreads on certain futures markets are too large. Think about what you would like to trade…but make sure it is practical.

If you trade penny stocks you might want to sign-up to the Honest Guide To Trading Newsletter which finds small and micro-cap companies that are showing significant strength.

What Time-frame Charts Will You Use For Analysis?

This is related to the type of trader you have planned on becoming. If your trading plan is to become a day-trader then you should specify the charts you will look at. This could be a 4 hr Chart to gauge the medium term trend, a 1 hr chart to gauge the short-term trend and a 15 min chart for your entries and exits.

If your trading plan is to become a Swing trader you might specify that you will look at weekly charts for the long-term trend and use daily charts for your entries and exits.

Which Broker Will You Use?

There are 100’s of on-line brokers and spread-betting companies available and once your trading plan includes the type of trader you’ll be, the markets you’ll trade and the time-frame charts you’ll be using… it is time to choose a broker.

The main considerations that need to be made are firstly what the financial strength and ownership structure of the broker is. Brokerages do go bust!

If you can choose a broker that is listed on a public stock exchange you will greatly improve the odds that you broker is financially sound.

If the broker you choose is based in the Cayman Islands and owned by one or two people…I advise you to steer clear of it, regardless of the perks that they offer.

The second point you’ll need to consider is whether the broker permits trading in the markets dictated by your trading plan. If you want to trade FTSE 100 stocks…look for the brokers that offer the most competitive spreads.

If you want to trade futures it is probably best that you find a broker that offers Mini-contracts. If you have a small account and want to trade Forex, make sure that you find a broker that offers Mini or even Micro-lots.

The third consideration should be what charting and analysis package the broker offers.

If your trading plan is to be a swing trader that uses Moving Averages, make sure that they are provided with the charts.

If you intend on being a discretionary trader it might be worth looking for a broker that provides fundamental data on the markets that you plan to trade.

The last consideration should be the perks offered by the broker. A word of caution, from my experience the companies with the best sign-up offers have the worst customer service and execution speeds – so please don’t be fooled by into signing up to a broker just for the freebies!

Trading Plan Strategy Rules

Now that your trading plan includes the type of trader you’ll be, the markets you’ll trade and the broker you’ll be using it is time to start creating your strategy.

The most important things to consider are how much you are willing to risk on each trade, what your entry signal will be and what your exit strategy will be.

It is also worth thinking about whether you only want to trade the long side, the short side or both. Further questions to ask yourself include…

How will you determine your stop-loss and position size?

Will you increase your position size if the account is up or will you decrease your position size if the account is down?

How often will you determine whether to change your position size?

How do you plan on avoiding too many positions in highly correlated assets?

What indicators will you use?

What parameters will your indicators be set at?

And what draw-down would cause you to stop trading the strategy?

Test any strategy before taking it live. If you don’t want to devise your own strategy straight away, you can use the strategies I have outlined in my book The Honest Guide To Stock Trading.

For a shorter term strategy you could use my intra-day bollinger band trading strategy.

Daily Trading Plan Routine

Your daily trading routine will be largely determined by your chosen trading style and time-frame. The shorter the time-frame you have decided to trade, the more planning and work is required. It felt as if I did enough day-trading to last a life-time at our old Prop-Firm, so I am predominantly a long term-trader.

Having said that, I know that many of you would like to be day-traders. Most of the following points are for you.

If you’re planning on being a day-trader then your trading plan should include that you check the economic calendar for today’s economic releases.

As I write this article Ben Bernanke is deciding whether to extend the Feds Bond Buying program…Trust me that professional day-traders plan on being mostly flat going into any Fed statements regarding Quantitative Easing.

On days with important news releases make part of your trading plan to exit all trades 10 mins before the release and re-enter if your rules permit once the statement or figures have been released.

Make sure that yesterdays trades are logged. If you have left any trades open over-night you need to check whether you need to update the stop-losses or profit targets. Your plan should also leave time before the market opens to plot yesterdays high, low, open and close.

You will need to plan on checking how the broader markets are doing too.

If your strategy is to day-trade small-cap stocks you should have a general idea of whether the broader market index is going up, down or sideways.

What did the dollar do yesterday?

Are we risk on or risk off?

Some of your daily trading plan routine should also be to stop trading!

Staring at charts all day without a break is bad for your eyes. Plan what time you’ll take lunch, what will you do if you are in a position at that time? Put in a trailing stop-loss? Close your position? Or do you plan on hedging your position with another market?

The last part of the daily trading plan is to have your watch-list prepared before the market opens.

Remember that a large part of why you are writing a trading plan is to keep disciplined and remain stress-free while the markets are open.

Make sure that the assets you have short-listed as potential trades have all had their key price levels updated and that the charts are easily accessible from your desktop.

Once the Market Closes

You’ve had a great day and stuck to your plan but the work doesn’t stop there. You now need to update your trading journal and make sure that you haven’t got too much overnight risk. I also think that a trader can benefit a lot from taking screenshots of the trades they placed..Snagit is a great tool for doing just that.

When you record your closed trades remember to include the entry price and exit price as well as the initial stop-loss and target.

Was the trade a profit or a loss?

Did you stick to your trading strategy rules? If not, why not?

A simple spreadsheet in excel is sufficient for this part of your routine. Don’t make it too complicated either, the more work that you give yourself, the less likely you are to stick at it.

No Use Writing a Trading Plan Unless You Have the Discipline To Follow It

The final point I’d like to share is that unless you have the discipline to stick to your trading plan, there really isn’t much use in writing it. That may sound easier said than done, but here’s some advice.

Good habits are easier to maintain if the results are instantly tangible. Don’t think about how hard it will be to stick to your plan for a whole year, just vow to stick to it tomorrow.

By the end of the day it won’t matter whether you have made or lost money… you will still have had the most satisfying trading day of your career. Don’t be similar to the 90%, write a trading plan today!

If you enjoyed this article, you might enjoy my book. See more here.

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The Honest Guide to Stock Trading

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