Learning to make your own trading plan is a simple but essential task to consistently succeed in the markets.
It is about establishing the guidelines of your operation and following the parameters on which your trading strategy is based.
We could say that it is a complement to risk management . Since we must be prepared for all the variables that can affect our profitability in the market and act following a plan that allows us to minimize losses.
Why is it important that you develop a trading plan?
We must bear in mind that in trading we are always going to operate with a risk margin . And this means that we are going to lose money at some point without question.
However, the difference between those who lose and end up with their accounts in zero and those who lose and still manage to remain profitable in the market, is the way in which they structure their trading plan.
Let’s see what the objectives of a trading plan are:
Establish and follow rules or guidelines:
This is the main objective of any trading plan and consists in establishing the parameters on which you will carry out your buying and selling operations in the market.
As well as when you should not enter the market and your daily loss ( Stoploss ) and profit ( Takeprofit ) margins .
When you define your trading strategy, you learn to identify the moments of opportunity in the market.
However, sometimes those opportunities may not turn out as you expected. And what comes next are emotions of frustration and the need to want to remedy it.
With which, if you do not have a trading plan, you can end up making decisions that instead of compensating for the failure, end up creating a worse picture.
And within the trading plan, this is defined as “thinking before acting” , putting emotions aside and minimizing risks.
It is about acting in the most rational way possible and putting aside the impulses to follow the rules that you established for your operation.
It is common for traders who do not establish a trading schedule to end up with more losses than profits at the end of the month.
And one of the reasons is because they perform many operations without taking into account the loss and profit limits.
That is, if they are losing they believe they can compensate with more operations and if they are winning they believe they can earn even more.
The result is that they increase the percentage of risk and end up consuming your accounts in no time.
When you learn to manage risk, you also learn that you must follow the guidelines for your strategy to be fulfilled .
And the best way is to compensate for risk management with a trading plan. In this way, you will be forced to respect the rules that will help you to be sustainable over time.
How to make a trading plan step by step?
1- The first and most important thing is to define what type of trading we are going to do. As it can be intraday, Scalping, or Swing trading.
And what matters is to always keep in mind the temporality in which we are going to be operating so as not to get out of it . Even when we are receiving entry signals that are not within the established hours.
2- Second , you must define the actions that you are going to take in case the market is not going in your favor.
This means that depending on your capital and taking into account risk management, you must establish if your next operations will have a lower level of risk, if you are going to reduce leverage or if you are going to enter with a new stop loss margin. .
And you must do the same on the operations in which you are winning.
3 – Third , you must establish what will be the maximum and minimum values that you will risk per operation . As well as the amount of daily operations. And this goes hand in hand with risk management.
4 – The fourth place is the execution of operations. That is, what will be the criteria that must be met in the market for you to decide to open or not to open a new operation.
And in case the conditions to operate are not given, stay away from the markets.
5 – Fifthly, we must define the monitoring strategies . Which refers to the moments in which you are going to decide whether to close a trade manually.
This would be a contingency measure in case there is a high probability that the market trend will change before reaching the takeprofit margin.
6 – And in sixth and last place , you must include the management of benefits.
Managing your benefits is deciding how much of the total earnings you will use to reinvest and how much you will withdraw from your account to increase or maintain your earnings in the following months.
Now that you know the steps to follow, you just have to get an agenda and start creating your own trading plan.
In this way, you can establish a structure on which to develop your trading strategy and improve your consistency in the market.