The Importance Of Trading Plan

Same Old Story Repeated again, Create Panic on overnight news (How Mauritius India Tax Treaty change affect Stock Market) Open gaps down , everyone run to short thinking news will have negative impact but market recovers and everything looks good. Traders go long but alas market turns back and go down again, Thus the cycle keeps repeating and unprofessional traders keep losing money.

Based on my Poll which is running on Twitter am thankful for all those who have participated, Its still going on so ask your traders friend to participate so that we have  a large sample size to work on. But the primary theme which has Emerged is FEAR which is the most pre dominant emotions.

As a trader these emotion will come,you cannot get rid of them but we need to learn how to keep this fear and discomfort from disrupting our trading decisions.

First Step is to have a WRITTEN TRADING PLAN that you can review regularly to stay focused on your goal of trading success. By writing down your plan, you will not swayed away by market noises, giving you an immediate edge on most traders.

Things to be kept in trading plan

  • Entry — It should be well defined based on your trading strategy with proper Risk to Reward Ratio mentioned. Loss if happens should not bother you and you should have courage to move on to next trade.
  • Exit — You should define an initial stop point for your trade, at the point where the trend is invalidated.  You will also need a ‘trailing stop’ technique to protect your profits.
  • Account Strategy —  Knowing Your Risk of Ruin will help in how much leverage you should take and what should be your trade size.
  • Type of Order — Will you use Market Order, Limit Order, Bracket Order. When I need to get out, market orders allows immediate exit compared to the risk of missing my exit with a limit order.
  • Positions to Focus on : Market is an opputunity generator and its generated opportunity every minute but How much you can handle based on your risk management and mental ability is what counts. Always be in your comfort zone.If you track large number of stocks , then you will lose focus and invariably miss an exit on a trade.
  •  Trading Journal and Review of Trades: Note daily observations, related to my ability to execute my trading plan.Have an end-of-day routine to close your day. what You did right and wrong, and seek to learn from mistakes to minimize future errors in similar circumstances, while also looking for winning patterns where You seek to repeat big successes. Review your trades, and assess if you followed your plan. Keep a log of all your trades, and make comments on each position.

Once you have defined your trading plan, you are in an excellent position to have a strategy to control your emotions when trading.  Make sure to review your plan on a regular basis to create effective trading habits.

6 thoughts on “The Importance Of Trading Plan”

  1. Again depends on the time frame you have developed your system on..

    Traders use 5,15,30 mins..

    Have you traded successfully on manual trading system ?

  2. For daytrading what interval chart is best to refer? What is review of 100% automatic trading system?

  3. We panic when we are carrying position which are outside our comfort zone.. if we are in our comfort zone a trade can never panic..

  4. Ok, so let me share what happened with me today.. I was treating the current 2 days rise as corrective one in BN.. so had sold far away call yesterday.. so at opening booked my profit and saw market rise up by by more than 150 pts.. so felt its lucrative chance to short again.. but it kept rising to break yesterday’s high.. that caused panic and fear and doubt. So booked loss on intraday short and waited.. then saw market correcting, so once again took short and currently holding my short for tomorrow..

    So what happens is that market stretches so much to instill fear and panic.. same would have happened with someone who must have been long over night.. he must have panicked in morning…

  5. Exactly what happened with me today! Went long and market moved down….then went short and market moved up!

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