The Importance of Trade Planning
As the expression goes: “If you fail to plan, you plan to fail.” Before embarking on your trading journey, it is important to set out a trading plan.
A trading plan is a systematic approach to executing your trading methodology based on your market analysis, while considering risk management and personal psychology.
Professional traders working towards making consistent profits, develop a robust trading plan in order to make the most of the markets. Sometimes, traders have more losing trades than winning, but they continue to follow a disciplined training methodology to control their losses.
Benefits of Trade Planning
- Trading with a plan offers a direction and structure.
- It allows you to analyze your performance. If you are on the losing end, a trading plan will help you in identifying lacking areas so that you can make corrections accordingly.
- A trading plan helps in keeping emotions in check. Trading can be disastrous when emotions get involved. Planning will deter you from making any irrational decisions, and in turn, allow you to control yourself!
- It allows you to optimize your time, and not waste time jumping around the markets to find your next move.
- It takes off the stress. Trading with a plan will allow you to make decisions with a clearer mind as you have pre-set out what your trading moves will be
Trading without a plan
Trading is a business, and if you want to see results, you have to treat it like any other business.
Reading a few articles, buying an expensive course, or testing out your trading skills without any prior knowledge is not a trading plan. These tactics offer you the knowledge and confidence you need to trade, but will not set out a strategic plan on how you will tackle the markets throughout your trading week.
How to write a trade plan?
A trading plan should be written in clear points that don’t require altering while you are trading. Even if you are on the losing end, your trading plan should be designed in such a way that you can recognize your position and exit the trade before losing more than you can afford.
Every trader has a different understanding of the market, so everyone should write their own trading plan. Using someone else’s plan won’t help you in the long-term. You can change the plan slightly along the way to align with market conditions until you are comfortable with the plan you are working with, and find one that works best with your trading style.
It is worth noting that the main purpose of a trading plan is to keep you organized so that you can trade in an effective way. Remember that no matter how good your trading plan is, for it to be of an advantage to you, ensure you follow it.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.