Build a Trading Plan That Works

There are three kinds of traders, those who engage in buying and selling without giving any thought to what they're doing, those who follow a trading plan but don't take enough time to create one that suits their particular needs, and traders who diligently create a plan that accounts for multiple variables and suits their personality and style. If you want to be in that third group, it's best to begin by building a plan that covers all the bases, and while there are no guarantees of profitability with any plan, working without a good one is a sure path to failure. Here's a general checklist that anyone can use to come up with a set of rules to follow day after day. Note that entering an exiting the market is much easier if you have a reliable technical infrastructure, like a simple mt4 terminal, a modern computer, and a reasonably fast broadband speed. It's okay if you want to have a complex set of rules, especially if you've been buying and selling for a while, but everyone should have the following things covered, at the very least.

A Written List of Rules

No matter your experience level, markets you operate in, risk tolerance, or the size of your trading account, you need a written list of rules as a constant guidepost. It's up to you what they are, and you can use whatever resources at your disposal to come up with them. This written manifesto should include all your general guidelines, like never buy or sell anything during the first hour after the market opens, make no more than four transactions per day, never spend more than $200 on a single purchase, only deal with CFDs and forex pairs, and more. The other section of your personal guidebook should include your money management strategy, profit goals, record keeping guidelines, and entry exit criteria.

Specific Goals for Profitability

Too many people ignore this part of the plan, and it's a shame because leaving it out can cause major problems. Think long and hard about what you're in this for. Is it a hobby to earn a little extra income, a part-time job that's necessary to supplement your daily income, or a full-time endeavor? Then, set a precise profitability goal. Don't worry, you can change it after a few weeks when you fine tune your rules. But, for now, decide how much you want to earn per day, week, or month. Most new traders set a monthly goal.

Markets You'll Trade

There's no sense in delving into segments you don't understand, aren't interested in, or aren't adept with. If you dislike the volatility of stock options, then don't trade them. If you have knowledge of foreign exchange markets, consider making forex your thing. Again, it's up to you, just remember to be honest with yourself, choose something you enjoy and can learn more about, and the results will be that much better.

A Money Management Method

How much are you willing to risk per transaction? How much are you willing to lose per day, week, or month and still stay in the game? A simple way to make a money management strategy is to set a small percentage, usually one or two percent, of your total account value, as a maximum spending level on any individual purchase. For example, if your account balance is $10,000, you might set a two percent ceiling on buys. Then, when you decide to get into a specific position, your maximum outlay would be $200, which is two percent of $10,000.

Comprehensive Record Keeping

No one likes paperwork. Ask any office worker, doctor, police officer, or teacher. Well, the same goes for traders. It's a necessary part of life, so make a commitment to keep daily records of every move you make. Your software will be a great help here, particularly if you use something like mt4, which can save every click of your mouse and keyboard during a trading session. Use your records to review and adjust your plan every month or so.

Entry and Exit Criteria

There's no sense in doing any of this if you don't have a method for determining when to get in and when to get out of a given position. Perhaps you favor technical indicators and primarily trade CFDs (contracts for difference), or maybe your specialty is using fundamental analysis on forex currency pairs. Whatever your niche and favorite sector, it's imperative to have concrete, numerical rules for taking a position. Often forgotten, but equally important, is having an exit strategy based on loss tolerance or profit points. Never get into a position based on your feeling, or emotional disposition.