Trading Strategy And Trading Plan

By | December 4, 2014

A solid trading plan is the cornerstone of your trading business. Unfortunately many traders think that all they need is a trading strategy. This is NOT the case! Let me explain the difference between a trading strategy and a trading plan.

A trading strategy tells you when to enter and when to exit trades. A trading plan is more comprehensive than a trading strategy. A trading plan covers at least seven elements:

  1. The market(s) you want to trade.
  2. The timeframes you want to trade, e.g. 5 min, 10 min, tick or range bars.
  3. A brief description of the strategies you want to trade and when to use what strategy.
  4. The entry rules of the strategies.
  5. The exit rules of the strategies.
  6. Other important rules, e.g. when to trade and when not to trade.
  7. The money management approach you are using.

You will notice that I approach the markets with multiple trading strategies. Every professional trader uses more than one trading strategy for a very simple reason: Typically trading strategies are either trend-following or trend-fading. Trend-following strategies work well in trending markets, but they do not perform well in sideways markets. You can’t trade ONE strategy all the time! When the markets are trending, you use a trend-following strategy, and when they are going sideways, you use a trend-fading strategy.

Here’s the hierarchy in which I use my trading strategies:

 

  • For Positional Trading I use the Trend Trading Strategy  which are trend-following strategies. When the markets are trending, THESE are the trading strategies of my choice, since I can use a larger profit target than stop loss. Typically trend-following strategies are more rewarding than trend-fading or scalping strategies, and that’s why THESE strategies are my first choice.

 

  • For Intraday trading , I use the Quadrant strategy, since this strategy is perfect for Nifty Intraday trading.

 

  • If I missed an early entry into a trend, I use the Chopad Level to catch the trend. Typically you will see that a market starts to trend, then retraces and after a short pause it continues the move in the direction of the trend, even if it is just for a few points.

 

 

As you can see, it’s not that difficult. as these stratergies helps you in going with trend if you follow them with discipline. you already know how to identify the beginning and the end of a trend.

And that’s the main purpose of a trading plan: Defining what trading strategies you trade and when. Start writing your own trading plan. A trading plan is something very personal; it’s something that fits YOUR trading personality and style. Something that YOU are comfortable with, since YOU will trade it every day.

Take the time to write a solid trading plan that you can then start trading.

7 thoughts on “Trading Strategy And Trading Plan

  1. Vijay

    How do we trade chopad levels? For example, if someone had entered NIFTY at 7960 today, should they exit if NIFTY slips below 7950?

  2. Omkar

    I want to learn Technical Analysis and Trading strategies. Please send me details .

  3. SChandra

    Sir
    Please post me details about your trading course.
    Thanks

  4. aijazwins

    Sir, this is one of the best posts that I read on trading in the past several months. Simply superb. Thank you for this gem !

  5. sunil

    Sir,
    May I know what is the quadrant strategy for nifty intraday trading?

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