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Trading Plan

Trading Plan: Trading is a business, and like any other you should have aonline stock trading plan before you begin online trading. One of the oldest sayings in business is " if you fail to plan, you plan to fail" Nobody that I know of, ever set out to plan to fail, and yet in trading and investing virtually no-one has a trading plan. If you were starting a business your bank would require financial forecasts and projections, cash flow forecasts and sales figures for the first 2-3 years. You would have analysed the market, and the competition, and would have a good idea of the strengths and weaknesses of your products in the marketplace. So why does no-one bother writing a plan before you start trading? Are they difficult to write ? -NO! - are they complex ? - NO, not really as they can be as simple as you like. So why don't people bother writing a trading plan. The answer of course is simple and is twofold.

Firstly, they are boring to write, and secondly everyone is too busy rushing in to the market to make money to write a plan. I have developed a site which covers all the aspects of writing a trading plan, so this page will simply be an introduction to the subject. The new site includes some basic plans for various markets which I hope you will find useful. This is now available via the following link How to write a trading plan

Trading Plan - Introduction

If you look at any successful trader, one thing they will all have in common is that they have a trading plan. The plan keeps you out of trouble in the heat of battle so that decisions are based on planned logic and common sense, rather than an emotional response when under pressure. A trading plan is written in the cold light of day, not when you are in emotional turmoil. This is why army recruits are trained to respond automatically to situations and commands almost as if they were on autopilot. It is the same in trading - make decisions based on emotion and you will lose - make your decisions based on a logical plan written with simple rules and guidelines, and you have a chance of winning.

Your trading plan must be a reflection of you. This is going to be your plan and and it has to reflect your personality, your view of risk, your objectives and why you are trading online in the first place. Why do so many people simply start trading in forex with no thought? - because it is easy! They have not sat down and thought about it as part of their plan. Why are they trading this market? It may well be that they are suited to this market, and it meets all their goals. If so, fine, but generally they have simply decided to trade forex because it is easy to set up an account and be trading in a matter of hours - or possibly they read an advert somewhere that suggested easy money for little effort.

Does it suit your personality, does it fit with your current work/life balance, does it meet your goals, both short term and long term - this is the first step in getting to a trading plan. I am not suggesting that the plan be part of your life goals, but you should think about it in this way - after all, you are in this to make money, and hopefully lots of it - so why do you want all this money - ask yourself this question now! And when you are making all this money, what then?

The trading plan provides the framework for your trading. It provides the goals, the objectives, the rules, and the overall strategy. The plan will have a consistent set of guiding principles which will dictate all aspects of the trading strategy. The plan cascades down from the the macro level of overall objectives and strategy to the micro level of individual rules and targets. The plan should include a trading diary as part of the process.

Many online traders ( whether trading stock, options, currency, or derivatives,) write and ask me to explain the process in detail which I will do on the new site. One of the biggest problems they have is where to start. I would suggest you think about the following question and when you have the answer work backwards to start considering your plan. The question is very simple and is simply this - WHY DO I WANT TO TRADE?  ( Don't worry - I will help you work out your own plan on the new site)

Once you have the answer to the above you can begin to make a start on writing your trading plan!

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