Trade Plan

Every business has a business plan and trading is also a business how many of you who are trading have a trade plan? The answer is 99 % traders don’t a have a written trade plan, now you know why 99 % trader’s lose money.

What is a trade plan: A trade plan is a scientific method of trading stocks, futures or any asset class. A trade plan lays down rules for trade identification, risk management rules, position sizing and selecting the right style of trading and preparing a plan based on your trading style.

A professional trader will not put his capital to risk until a detailed trading plan is made. A trading plan is a written document like any business plan that guides you in your trading business.

• A trade plan is like a road map for how to trade various asset class
• No trades should be entered without detailed entry rules
• Risk management rules should be fixed e.g.  4% risk on capital
• Trades to be taken as per position sizing
• Risk management rules for per day, week or month rules should be decided before hand
• Rules for trade entry, stoploss and profit taking targets should be laid down
• Marinating trade journal on daily basis and posting entries in your journal after every trade
• A trading plan should be written down and followed religiously

Trading plan can be designed and build in different ways. Traders will always customize their trade plan based on their financial goals and financial objectives. Trading plan will be very detailed for active day traders and swing traders whereas for a positional traders’ rules for entry are few and may not be an elaborate one.

Briefly we will outline what should go into your trade plan:

• Which asset class you will trade. Stocks, futures, options, commodities or currencies
• Defining your rules for entry for long either you are following a trend-based strategy or a momentum strategy or a volatility-based strategy.
• Your tolerance for risk ,how much risk you will take per trade as a % age of your trading capital

Happy Trading!!!

Cheers