Building a Trade Plan

Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, developing a trading plan is crucial if you want to become consistently successful and thrive in the trading game. Every trader—no matter your experience—needs a plan.

Setting your trading objective is one of the most important steps in developing a trade plan, yet is the one step that most new traders neglect. Purposefully thinking about your objective helps you clarify what you plan to achieve, how you plan to do it, and by when.

There’s a method to your madness, right? Now that you have your objective in mind and know where you’re going with your trading, it is important to describe how you intend to conduct your trading business in general terms, i.e., your methodology.

Risk management is absolutely essential in successful trading. At the outset, all you need to do is simply define your risk management approach and any specific rules you intend to use.

Now it is time to focus on putting together your trading strategies, which at this point mostly concern how you establish your entry and exit points. In many (if not most) cases, the timing of your position entries and exits will be the most stressful and thought-over parts of the entire trade.

A trade log is an excellent tool for viewing the bigger picture. In one snapshot you can get an overview of your trading history and identify successes and mistakes made along the way.

Before you open your first trade, there's potential to make a couple of common mistakes. And as these are easily controllable, there's no reason to be caught out.