How to Prepare Successful Trading Plan Part-I

In trading, you have two choices:

  2. Fail.

Any trader who consistently makes money in the market will tell you that unless you create and follow a plan, you will fail.

If you are one of the few who have written a trading plan, you are off to a good start for success. Having a plan is certainly no guarantee for success; however, it does get you over a major hurdle. If your plan has a few shortcomings or it lacks sufficient preparation, it will take you a while to start seeing success. But when you have a plan in front of you, it gives you something to work with and modify. Documenting your process won’t prevent you from making mistakes, but it will keep you from repeating them.

Lets Discuss How to create a trading plan as market are very volatile in past few sessions and traders who cannot handle the volatility should use this time to getting accustomed to make a trading plan and using it in future.

Avoiding disaster

If you want to succeed at trading, you need to treat it as a business. Successful businesses always have a plan. Many people in business often boast about using a seat-of-the-pants model for business. They arrive at a destination, but they don’t always know how they got there. In other words, reading a few books, learning a little about the trading, and opening a brokerage account could all be a recipe for disaster.

The market has the potential to pause or reverse. When you know where either will occur, you will be in a position to act accordingly. This is where having a concrete plan is necessary. But even with a plan, you will need to re-evaluate it after the market has closed. You will adjust your plan as you sharpen your expertise and as the market changes. This is why as a trader you need to develop your own plan. You need to consider your own trading style, skill level, and goals. If you use another person’s plan, you won’t be able to accurately account for these factors and you will do yourself a disservice.

Building your master plan

The following are 10 essential components of a good trading plan:

Skill assessment

This is where you determine if you have tested your system, have confidence that it works, and you are ready to trade. Are you prepared for whipsaws? Trading is an activity of give and take. If you have a plan, you will avoid the costly mistakes that those who don’t have a plan will make.Who would have wondered Nifty breaking below 8000. 7800 PE was up by almost 5000% if you would not have a plan as an Option Writers you would have taken a big big loss.

Mental preparation

Trading is a mental game. This means that you need to be alert and attentive to the task before you. Are you rested? Are you up to the challenge? You don’t want to risk a big loss because you are not mentally, physically, and psychologically ready to face the markets. If you have had a bad night, are hung over, sick, or just not emotionally prepared, you should skip the day. Some traders recite a mantra before facing the market. This is a good way to help you get mentally prepared. Find a mantra that is motivational and puts you in a good trade mood.

Set your risk level

Before you go into a trade situation, you need to determine how much of your portfolio you should risk on any one trade. Your risk can be between 0.1 percent up to 1.5 percent for every position. Anything above this is really skirting with disaster in my opinion. Establishing this ceiling compels you to get out and stay out in the event that you lose that amount at any point throughout the day. In your plan, you determined your trading style and risk tolerance so you have already made this decision before going in. Stick to this risk level if you want to continue trading on another day.

Set your trading goals

Part of your trading plan involves setting realistic profit targets and risk-to-reward ratios. What are you willing to accept in terms of risks and rewards? Some traders refuse to take a trade unless that trade’s profit has the potential of being at least 3 times greater than the risk.  This is a goal that you need to set and reset often (weekly, monthly, and annually). Best to set percentage of your trading capital.

To be Continued

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