Acquiring the ability to formulate a strong trading plan and implement it is vital in online trading. A well-crafted plan will provide you with direction on selecting the suitable market to trade in, help you identify the ideal moment to take profits, or recognise when to close loss-making positions. In this article, we will look at what a trading plan is and the various steps you can follow to build a strong trading process.
Building a strong trading plan and creating a strong trading process is not an easy task and should be revised according to your skills and progress.
One of the first things you need to do is write a comprehensive plan with clear objectives that cannot be changed during trading, but that can be reevaluated when the markets are closed. This plan should be adjusted based on changing market conditions and your own increasing skill level. It's crucial that you create your own plan, taking into account your trading style and objectives. Using someone else's plan would not reflect your unique trading characteristics.
What is a trading plan?
A solid trading plan is a thorough guide that aids in making decisions related to your trading. It assists in determining what to trade, when to trade, and how much to trade. It's essential to develop a personalised trading plan rather than using someone else's plan as your own as their level of risk tolerance and available funds may vary greatly from yours.
A trading plan is important because it can assist in making rational trading choices and defining the ideal parameters for your trades. It is beneficial to have a well-structured trading plan as it can prevent impulsive decisions made in the heat of the moment.
Trading plan vs. Trading strategy
A trading plan is a methodical approach utilised for identifying and trading securities, taking into account various factors such as investment goals, risks, and time. Having a strong trading process will help you establish guidelines and criteria for selecting asset classes and executing trades. It should be noted that a trading plan is distinct from a trading strategy, which dictates how to enter and exit trades to maximise profitability and minimise risk exposure. A trading strategy may be based on either technical analysis or fundamental analysis.
Advantages of having a trading plan
1. By having a strong trading process in place, you can trade easily without having to waste time or energy, as you have already done all the hard work.
2. A plan will guide you to make decisions without any emotional effect, and will be ready to take profits or cut losses rationally.
3. By following your trading ideas and plan, you will have a clear head and will be more objective, gaining more insight into your trades and finding what works and what doesn’t.
4. By keeping records, you can learn from your mistakes and make better and more well-informed trading decisions in the future. A profitable trading process may take time, and will involve challenges and mistakes, but as long as you minimise losses and improve on past mistakes, you will find the confidence and build the trading strength to face new challenges and be more prepared.
Trading plan: Things to have in mind
Your trading plan may encompass any information that you find helpful, but it should always try to address the following questions:
1. Do you have the skills needed to start trading?
2. What motivates you to start trading?
3. How much time do you want to commit to trading?
4. What are your trading goals?
5. Are you ready to take risks?
6. How much capital can you allocate for trading?
7. What markets do you want to trade?
8. What steps will you take for keeping records?
1. Skills
You need to approach trading as a job and not as a hobby, ensuring that you have done your homework, acquired the necessary knowledge and practised your strategies.
2. Motivation
To do well in trading, you need to have an incentive that is deeper than the desire to make money. Find out what trading means to you at a personal level and why it is important to you. What draws you to the markets, for example? If you have the desire to solve a puzzle, enjoy the feeling of trading as a stimulating and intellectually challenging experience, or as an exciting game of probabilities and chances then you know what makes you tick as a trader. You may like the adrenaline of competition or making decisions based on instinct, or you may want to enjoy working from home. If you know the answer, then you know your goals and you can formulate a style of trading that fits your profile.
3. Time
Think about how much time you can dedicate to trading. Can you trade while you’re working, will you make many trades a day, or you’ll need more time? Don’t forget to set aside enough time to prepare for trading, practice your strategies, get more trading tips and trading ideas, and analyse the markets.
4. Goal-setting
You should set goals you can achieve and be very specific. Don’t set unattainable goals, otherwise you will get disappointed.
5. Taking risks
Before you jump into trading, it’s crucial to figure out how much risk you’re comfortable taking on. This includes considering how much risk you’re willing to take for each trade as well as for your overall trading strategy. Keep in mind that market prices are constantly fluctuating, and even the safest trades come with some level of risk. Some beginners prefer to start with a lower- risk approach to get a feel for things, while more advanced traders are willing to take on more risk in pursuit of bigger rewards. Ultimately, it's up to you to decide what level of risk you're willing to tolerate.
6. Capital
Before you dive into trading, it's important to take a look at your finances and figure out how much money you can comfortably allocate towards it. Remember, never risk more than you can afford to lose because trading can be risky and you could end up losing all of your trading capital. If you don't have enough funds to start trading yet, you can practice on a demo account until you're ready to go live.
7. Markets
Select the market you want to trade in. Are you trading forex or shares, indices or futures? Each one of these is different and will require specific knowledge. Learn as much as you can about each asset class including how volatile the market is and the factors that influence the price of each asset and trading instrument you want to trade.
8. Keeping records
If you want your trading plan to be successful and build a strong trading process, it's important to keep a record of all your trades in a trading diary. This will help you figure out what's working well and what isn't. If you ever deviate from your plan, make sure to write down why and what the outcome was. The more detailed your diary is, the more helpful it will be.
If you're ready to start trading, you can open a live account with T4Trade or try out the demo account to practice without risking any money.
T4Trade live trading account
To open a trading account, you can visit T4Trade’s website and click the Sign up button at the top right-hand corner. You can then fill in all your personal details. When your account is approved, you will receive an email with your trading account details, how to fund your account and how to upload all the required supporting documentation. To unlock the full functionalities of your account, you will have to upload proof of identification (passport, ID, driver’s licence) and proof of address (recent utility bill, bank statement, or any other official document less than 6 months old).
For more information, you can log in to the Client Portal or contact T4Trade’s friendly customer support team which is always available 24 hours a day, 5 days a week.
DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication
