Trading Plan

“He who fails to plan is planning to fail” -Winston Churchill

Any solid trading plan consists of the following five components. ¹⁾

1. Objective ²⁾
2. Methodology ³⁾
3. Risk Management ⁴⁾
4. Trading Strategies ⁵⁾
5. Trader Log ⁶⁾

It is extremely important to establish clear entry and exit criteria and stick to those rules because it is far too easy to base a decision on an emotional response rather than a strategy. ⁷⁾

Professional traders play defense first because they know exit points are far more important than entries. Before you enter a trade, you should know where your exit points—and there are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and move up your stop loss on the rest of your position to break even if you wish. ⁸⁾

• What indicators will I use to determine my entry into a market position?
• What are my set-ups?
• What are my trigger points?
• How will I manage my open trades?
• What are my exit strategy?
• What is my stop loss for a particular type of trade?
• What is my profit target?
• What is the percentage of my portfolio I am willing to risk on any individual trade?
• Example Trading Strategy

• I intend to carefully monitor the 200-day moving average (MA) in all currency future contracts, as it is an important support/resistance point. If, for example, the Yen is breaking, I will always be a buyer at around the point of the 200-day MA, on the presumption that the market will find significant support at that point.
• On trades of this type, I will use a stop-loss order of up to 2% of my equity.
• The only time I will withhold from making a trade of this type is if volume and open interest are extremely high, indicating a major market move is underway in the opposite direction.