Build a trading plan

A trading plan is a guideline that guides investors through the entire trading experience. It defines the conditions under which a trader enters the market, open positions, find out which markets are the most suitable in a moment, when to exit trades and how to manage risks along the way. The trading plan ensures accountability and keep traders attention on their personal strategy.

The analytical approach raise the answer, “How do you find out trade tendency?”. It is usually find out by a combination of price support and resistance, trend lines, chart patterns, Fibonacci levels, moving averages, Ichimoku Clouds, Elliott Wave Theory, sentiment or the use of fundamentals etc.

This first step helps traders to focus on a handful of scenarios that the trader finds familiar. Even though the trader has a plan, he can look for opportunities to trade depending on trends of assets.

The trade set up stands in the center of the trading journey. Let’s first think of the analytical approach as a fundamental step towards trading. For example, viewing a consolidation pattern which can guide the trader to further actions, like going ahead to open more positions, close the current positions or just wait.

When starting, it is more effective for traders to limit the numbers of instruments in focus. Markets are not the same and do not have the same behaviour towards an event or a factor which might bring changes in its price. When you are focused in one market you better understand the nuances of it. Traders can even give special attention on specific time frames on a single market to familiarize themselves with what makes this market different from the others.

Time frames are related to the type of trader you choose or want to be. So, scalpers or day traders will focus more on short term trades since they open and close their positions on the same day. Swing traders will keep their positions open for a few hours up to a few days. Long term trading involves time frames from days, weeks, months and sometimes years.

All steps of the plan are important, but there is one, which if missed, is able to destroy the whole plan. Risk management should necessarily be part of the plan and taken in high consideration. Here, traders are encouraged to decide their personal risk tolerance by setting limitation of losses through stop loss mechanism and take profits

It is normal to experience setbacks, so it is crucial for traders to set a few rules so you will be able to manage emotions you would go through. A very smart way to achieve that is by quantifying an amount, or percentage loss that would force the trader to go one step back and evaluate what went wrong. This should be quantified in advance and not letting to take action in the moment the difficult situation arrived.

Now let’s take in consideration good scenario, what to do when traders are successful. If you are confident, this is a very good sign, but if you are overconfident that could lead to quickly turn winning positions into losing ones.

It’s a smart move to review the trading plan and make changes if necessary. Periodical trade review and journaling are excellent ways to ensure you are following the process outlined in the trading plan. Make a note or save charts relating to successful/unsuccessful trade setups that can be reviewed later on.