The critical lesson chess players learn is that a bad plan is better than no plan.
In trading, failing to plan equates to planning to fail. So in this short lesson, we will look at developing a sound, profitable trading plan.
A trading plan has several components. Each component covers different elements of trading. We are going to break down these components;
Without a vision, my people perish!
Goal setting is critical for high performance. Setting realistic goals can help us sustain focus, a prerequisite for high performance.
A vision is a big picture perspective of what we aim to achieve in the markets. So, for example, we could have the idea to trade a seven-figure account. But, on the other hand, goals are tangible targets that can guide us on our path to attain our visions.
Among the most crucial process goals in trading include;
Risk management goals
What plans have you developed to help in managing drawdowns and maximizing returns?
Developing low-risk ideas
Goals pertaining the process of generating low-risk trading ideas. A sound trade idea has an asymmetric risk to reward ratios.
Trade execution goals
Goals of implementing trade ideas to maximize reward and minimize risk;
Goals of maintaining a constructive mindset for optimal decision-making;
Are you aiming to preserve capital or to multiply money? Depending on your objective, you must think hard about how to organize yourself to attain profitability. A balance between the two is what we should aim for in our trading.
What are your objectives for the next six months of trading? Deliberate practice can only happen from this perspective.
The goal of proper research is to develop low-risk ideas in the markets. Therefore, depending on your trading style, you must create different frameworks or perspectives that we can use in our research.
A trader focused on Fundamental analysis must research data releases, central themes in the markets, and critical data points that can act as an edge.
In technical analysis, we can use the top-down approach to look at markets. Here are some questions that can help in research;
In this section, it’s all about pulling the trigger and managing ourselves.
Mental rehearsals are essential in this section of our trading.
The following data points can help us think through our trade executions;
“The Dead can’t be brought back to life.”
Risk management is the holy grail of trading. To make money, we need to be alive.
Avoiding the risk of ruin needs strategic decision-making. But, unfortunately, most traders settle on simple risk management rules, which don’t help prevent catastrophic events.
Discipline to follow trading rules is a must.
We will look at key data points that we must consider when planning how to manage our risk.
Traders are part of the trading system. All styles of trading are discretionary. We make decisions daily on how to position size, which markets to trade, and how to mitigate losses.
We, therefore, need to plan how to manage ourselves in the markets. Lack of mastery over ourselves only results in losses in trading.
Here are points to help you think through how to manage yourself in trading;
Reading this course and failing to take action marks the beginning of failure. So don’t jump into live trading without thinking through everything outlined in this lesson. All the best!