How to build a trading plan in 7 simple steps is what you are going to learn in this article of today.
Any good trader, if he wants to be profitable in the long term, must have a trading plan. Building it must be part of his routine. The goal of the plan is to put in writing and without any pressure the decisions that will be made during the trading session.
It will then be necessary to strictly follow this plan. It’s your safeguard. Whether it is a handwritten note on your desk or a document written on your computer, you absolutely must have one and especially follow it. Now let’s see how to build a trading plan in 7 simple steps.
1. Choose your market
You must first choose which market you will trade-in during the session. If you have several favourite markets, browse through them and select those in which you think you will have possibilities to open positions.
If you are just starting out, avoid spreading yourself across too many different markets. Once you’ve chosen what you’re going to trade on, write it down and move on. The following points should be applied to all the markets you want to trade.
2. Analyze the market
You are going to have to take all the information you can find by analyzing your market. You must know it by heart to be able to consider what it might do next. To do this, you will define the trend, identify the technical figures, look for the supports and resistances that seem important to you, … Note the important information that can be used during your session.
3. Define your strategy
You will now have to choose what will be your strategy compared to the trend. Are you going to follow the trend, be against it or, if the market is wide, trade the rebounds on the highs and lows? Depending on your strategy, in which direction will you open your positions? Are you going to buy or sell? Also note this decision, it will avoid heavy losses.
4. How will you place your Stop Loss?
You need to know how you are going to place your Stop Loss. Are you going to place it on an important level that you have spotted on the graph, or will you place it systematically at a certain number of pips? You should know this in advance because this decision is directly related to the management of your portfolio and the risk you take when opening a position. Also note this because when the time comes to open your position, you may not have time to calculate the amount you accept to lose if your decision is not right.
5. When will you open a position?
You will then indicate when you will open a position. Several causes can be considered:
– When a trend line or a support/resistance level is broken by a candle.
– When the price makes a first rebound (pull-back) after the previous breakout.
– After the validation of a technical figure.
– At the time of a signal given by a technical indicator (s).
6. When will you get out of your position?
It is relatively easy to know when to open a position, however, when to close it is more difficult and less often explained. However, you must indicate in your plan when you plan to close your position.
As for the opening, several causes can be considered:
– You have reached a fixed gain of X pips which suits you.
– The price has reached a level of support or resistance or has come into contact with a trend line.
– An indicator has given you an exit signal.
– The Stop Loss has been hit. This can be brought closer as the price moves away from it, we then speak of a follower Stop Loss.
7. When will you stop trading?
Trading is psychologically demanding. Whether your day is going well or bad, you should plan a level of gains or losses where you will stop trading if it is reached.
If you win a lot, you may feel invincible and you may fall into “overtrading” which will ultimately cause you to lose the accumulated gains. To avoid this, set the percentage you want to reach and stop once you get there until the next session.
Conversely, there will be days when you will lose multiple positions in a row. The risk is also to fall into “overtrading” with the hope of compensating for the loss. Although hope gives life, it is not very useful in this situation … Also, set a maximum level of losses and stop trading until the next session if unfortunately it is reached.
If you’ve followed the previous 7 steps, then you should have a fairly comprehensive trading plan. I can only stress once again the importance of doing it and especially of following it.
It is this plan that may perhaps make you a profitable trader! Your plan may not be entirely right at first, but with practice, you will quickly be able to make a correct and reliable one. Remember, however, that it’s impossible to predict what the market will do, and be aware that even the best plan in the world can sometimes be wrong.
Thank you for reading this article, I invite you to ask me your questions in the comments. I will answer it with great pleasure.
Thank you for reading this article!