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Trading Plan Outline
1)Defining Trading Styles. Specifying what your trading style will be is a great self-reflecting exercise. This will allow an opportunity to see how well you understand the trading style. The more you are able to explain the trading style the better your overall understanding of what you are attempting to do. If you lack information on the trading style then maybe it can be seen as another opportunity to learn more or utilize another a different trading style. Begin with what you know and build on it. This is how we go from Checkers to Chess in our trading journey.
-Trend Following
-Scalping the Trend
-Mean Reversion
-Breakouts
-Pullbacks
-Support and Resistance
-Supply and Demand
-Indicators
-Scalping
Which trading style will you use when the market comes to your corner and why? If it’s a combination of styles, what supports your conclusion?
2)Defining Your Corner in the Market and Strategy to Capitalize on the opportunity. “Entries”
-Knowing what trading styles you plan on using and how will you implement them?
-Traditional, classic, or out of the box. Meaning will it be a strategy that is part or the 90% well known information or 10% out of the box thinking?
-What is the exact set up broken down into detail? Indicator plus price action styles. Meaning at what point will you visual or statistically see the market being cornered into your trading style and strategy?
In DETAIL. If you are basing it only on levels, engulfing candles, and one indie then: How are you defining the levels, what size engulfing candles in comparison to the levels, and what settings for indie to get you in after full confluence?
Setting this up correctly:
3)Define Timeframe and Duration of Trading
-Choose a time frame which will match your target in the Money Management.
-Why this time frame? 4Hour because you will be working full time? Or trading for 1Hour before leaving for work scalping out pips IF there is an opportunity. Or 5min and 15min for the morning or evening. Trading needs to match your lifestyle. We set ourselves up for failure if we cannot dedicate enough time in the market to trade this corner of the market.
-If we have a set timeframe in which we will be trading how long will we invest our time into trading that timeframe? Will it be for a one trading session or will it consist of periodically checking the hourly or 4hourly charts?
-Are you going to use and have Multiple Timeframe in your strategy. If yes, are you going to use alerts to your email to notify yourself if you do not have access to the computer with your system on it for a visual representation?
-Trading should match your lifestyle and time. Waking up in the middle of the night to check trades can be very unhealthy and added stress in our life.
Example: Checking the overall daily analysis or system. Marking the trend filter for longs or shorts based on the daily. Confirming on the 4hour and waiting for our triggering system for trade executions.
4)Defining Risk/Money Management ( The Most Important)
-What is your comfortable risk per trading strategy?
-Does this risk reflect your trading style, time frame your trading in, duration of time spent trading, along with your trading strategy's target, and a proper proportion to the trading capital?
-Can you quantify your money management/risk? As in are you measuring risk by ATR/ADR, previous high low stops and targets. If ATR/ADR is able to be quantified and easier to track performance. If its measured by price action analysis then you may be forced into holding a trade too long waiting for it to hit target. A simple suggestion here is to have a metric by which the trades are taken in the MM/money management system.
-Percent risk of capital or fixed lot risk?
-Where and why are you going to place stop losses?
-Will you add to your winners or losers by cutting risk in half?
-Where and how will you implement trailing stop losses?
-Will you implement recovery trades of some fashion and why? Recovery systems can be dangerous and used in a specific back-tested fashion. Having a couple step martingale system can prove advantageous if fully used in a demo account and understood.
Example: Take profit set for 2atr/adr and risk 1atr/adr. Trailing stop begins at .5 atr/adr from original stop placement.
5)Define Exits
-When in a trade will you be fully committed in the trade by allowing the trade to hit the stop loss or is there a predefined exit which visually reflects your need to exit the trade before a take profit, stop loss, or trailing stop loss is hit?
-What predefined indicator or analysis will close a trade before and profit or loss is realized? Is it consistent? Why does this work?
-Will you hold positions overnight or over the weekend?
-How many candles or days will you stay in a position if the market does not reach predefined profits or losses?
-Has price deviated too far from price which could give us a clue of exhaustion in a mean reversion strategy.
-examples: previous high lows, previous supply and demand zones, a back-tested exit indicator.
6)Defining Avoidance
-Is there predefined visual representations or information that will prevent you from trading a specific market or currency pair?
-Will you avoid fundamentals, holidays, sundays and fridays, ranges, trends, or political speeches/turmoil?
-What are the risk in trading during these times?
-How many pairs will you trade at the same time? Suggestion here is if you are currently trading long in USD/JPY and selling EUR/USD there is no more room in your exposure to trade another USD pair.
7)Define Continuation Trading
-I highly suggest you have a separate strategy designed to get you back in after a stop loss specifically or if you get stopped out of a trade because emotions or falsely read analysis.
-What will your re-entry rules be.
DETAILS allow the market to come to your corner. If the market shows you something other than your corner wait for the market to come to your corner. If you miss the movement then wait for your re-entry trades only if the market presents itself again to your corner. Do not force a trade!
8)Trading Psychology
-Will you have music playing to calm the nerves or stay motivated?
-How many losses do you take before shutting of the system?
-How many wins during your timeframe will you close before walking away from the trading screen profitable?
-What keywords or phrases will be on posted notes around your screen or trading journal?
Example: Patience, Let the market come to you, Patience, do not force a trade, do not be Greedy, do not trade thinking its money I can afford to lose, Follow the system, follow the trading plan....
Little notes around your screen or on a note pad next to the screen help remind us to stay focus and out of our emotions.
Reminders
-Reminders go a long way when live and make a big difference when your losing in trades.
-What is your mantra or virtue you will focus on while trading?
-No distractions when trading(depending on the time frame). only news of some sort so you can stay in the zone.
-How will you stay in control of your emotions?
This Trading Plan Outline gives a comprehensive guide to success. Success breeds habit while failure breeds learning.
One very common mistake with new and experienced traders is not sticking to the system for a duration of time.
Many traders will start trading a new system they learned about on Youtube. They will take some losses and then give up on the system entirely! Never giving it a chance to rebound from the losses.
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