To be consistently profitable as a day trader, one of the critical tools to have in your toolbox is a trading plan. The trading plan is the map, it’s the recipe, the formula, and the guidelines of what you’re going to do every day in your interactions in the market.
Having a trading plan ensures that your series of actions and choices is already well thought out before you start trading.
Imagine that you’re driving down the road and there’s a fork in the road. You’re not sure which way to go. You pull out the map and you’re frantically trying to choose the direction, left or right, before you get to the fork. Can you feel the stress that invokes?
Now think of the same fork in the road that you’re driving towards, only this time know that you’re going left at the fork. There is no anxiety or confusion or fear, you’re clear which way you’re going.
In essence, that’s what a trading plan does for traders it takes the decision making, the confusion, the anxiety, panic, the last minute decision out of the middle of the trade and clears it up before you take the trade.
The plan is the foundation of successful trading – or certainly one of them. If you find yourself waiting until you are in the middle of a trade to make a decision or you find yourself frantic, unclear, uncomfortable, etc. in the decision of taking your next action step and, you might need a trading plan. Or you need to be following it if you have one.
If this resonates with you, here are some suggestions for your trading plan:
- Write a Trading Plan and use it.
- Tweak it and change it on a regular basis, as needed. It is your “Bible”.
- The core of your trading plan is your strategy(s). Make sure it is clear and complete, and it works to produce income over time if it’s followed.
- Perhaps have a colleague review the trading strategy to ensure that it is clear and detailed enough so another person could implement it.
- In addition to the Strategy section, you might include these following sections and/or others:
Your Goals and Vision for your life/business as a trader: What do you want, who are you, what does it feel like, what activities does your day include, how much are you making, what hours are you working, etc?
Clarifying Risk Management: Clarity how much money you are willing to lose in each trade and during each day. Identify your entry points, your target(s), and your stop clearly, and in writing, for each trade.
Managing Risk: Follow your risk management guidelines so you implement exactly what your risk management instructions dictate.
Tracking/Analyzing Trades: Document each trade, the trade results, whether or not you followed your plan, and any comments about the trade and about your mindset while taking the trade.
Trade Reviews: Review your trades after market close for things you did well and areas of improvement.
Trader Mindset Work: Meditate, journal, track your emotions and reactions during trade. Work with a trading coach, do breathing work, and any other supportive modalities to assist you in strengthening your mindset are detailed in this section.
General Guidelines: What are the prerequisites to go live with my trading? For example, if I have 20 trades in a row where I follow my plan, then I go live. Conversely, what needs to happen to push me back onto the simulator and stop live trades. Example, two trades in a row where I do not follow my plan.
Your Schedule: Here is a rough example of what this might include: wake up time, grab coffee, meditate, take the dogs out, review charts and levels, plan trades, wait for the set up, take trades, stop trading by 11:00 AM EST, document and review trades, plan for tomorrow.
Trading Checklist: Abbreviated list for all the actions I take daily. Check off daily as the day progresses… (The checklist is typically incredibly helpful.) So these are a few elements to include in a trading plan. There are others that could be used. As you can see, the trading plan is more than the strategy. Taking trades is only a fraction of your job as a trader. Learning, preparation, waiting, recording, analyzing, etc. are all equally as important.
Once the plan is written, updated, and ready to go, the next challenge is to be able to follow it. Sometimes traders don’t follow their plan consistently! They’re focused on making quick money, or not losing money being stopped out, or anxiety just takes over, etc. and the plan goes out the window. At that point it’s certainly useful to examine your mindset and what is happening internally and reach out for help to correct this, especially if you are in a hurry to reach success.
If you have questions on the trading plan or you would like to take me up on my offer for a free trader mindset consultation, send me an email.