CREATING A TRADING PLAN PART 2

CREATING A TRADING PLAN PART 2

Look at the man in the mirror.

Let get to business now. “Your mental state is key in trading successfully” Peter Crown. You have to be right in the mind before beginning to trade. What we are going to do now is set the foundation, to answer questions most traders are afraid to ask themselves. By asking yourself these questions and answering them truthfully, you will find that you become grounded and you will have a goal for trading. Please add this into your trading plan.

Why do you want to become a trader?

Normally the first answer that pops into the mind is to make money. That is true, but you would have to dig deeper. There are other easier ways to make money, and making money in trading is very hard work.

An example of an answer: I want to be a trader because . . . (I am excited by the challenge to be successful in a discipline that is notoriously difficult and where, allegedly, 90% of participants fail). My primary objective in wanting to be a trader is to . . . (generate sufficient annual income of $______ in order to support my family). My secondary objective is to . . . (spend more time with my family and enjoy the freedom of being able to trade from anywhere in the world). These objectives are important to me because . . . (they provide purpose and direction to my life and enable me to lead a more balanced one). I believe I can achieve my objectives because . . .

What kind of trader are you?

Are you a technical or fundamental trader? Are you a discretionary or a mechanical trader? Are you looking for short term or long term trades? Are you a position, swing or day trader?

An example of an answer: I am a discretionary trader and my style is very . . . (aggressive - which makes me suited to scalping intraday or, alternatively, conservative – which makes me suited to swing trading end of day (E.O.D.)). I understand that I cannot predict the future and I accept that I cannot control the markets. However I can control myself, which I will do by . . . (adhering strictly to my trading plan that is detailed, specific, tested and profitable).

What are your strengths and weaknesses?

You will have to list all your strength and weaknesses in trading and you will have to elaborate on how it will help or hinder you in your trading experience. If you have trouble answering this question, paper / demo trade for sometime and note if you are doing something wrong or right. Do this until a pattern emerges which should reveal to you your strength and weakness.

An example of an answer: My primary strength is . . . (allowing my profits to run and closing trades in accordance with my exit strategy. This contributes to ‘my edge’ and helps me towards my goal of being consistently profitable in the markets). My secondary strength is . . .
My primary weakness is . . . (wanting to recoup a loss quickly which, almost inevitably, results in increased losses). The following aspect of my trading plan will help to control this weakness and prevent losses from spiralling out of control . . . (I have a pre-defined daily stop. If it is hit, I stop trading
for the day). My secondary weakness is . . .

Are you in the right frame of mind to trade?

Like it was mentioned before, your mindset is the key in trading successfully. Ask yourself, have you slept well, are you fit, healthy and mentally alert, are u calm and relaxed or tired and distracted my things happening around you?

An example of an answer: I will only trade on days when . . . (I am rested, relaxed and not distracted by work or family etc. I will be guided by my trading plan and I will adhere to it rigidly. It will help to prevent me from making trades that are poorly conceived and executed; i.e. trades that are based on gut feeling and motivated by fear and/or greed).
I will not trade on days when . . . (I am feeling off colour, hung over, particularly tired or when
I am mentally distracted by other events in my life).

What kind of income are you looking at or hoping to get?

We all want to make money in trading, that's a given. It is important to know what kind of income you are looking at? But there's a catch, if you have a 10k account, don't expect to make it into a 100k account in a month. Be realistic. Only by testing the systems will you have an idea of what kind of income you are looking at. Don't wish for the sky because it could crash on your head.

An example of an answer: My financial targets are . . . (to achieve a return of X% per year, which equates to an annual income of $______ without the drawdown on my account exceeding a maximum of Y%. This equates to an average monthly income of $_____, an average weekly income of $____ and an average daily income of $___. Therefore, I have a daily target of Z% of my total equity).


I think I will stop here for today and get back to trading. The next part will setting trading goals. A trading plan takes time to make, but to be frank with you, the trading plan has saved me from loosing my head many times and it's worth the effort to create one. The trading plan will have everything, your whole thought process, and these questions and answers should be in the trading plan, it helps to create a foundation where you know who you are.