Advanced Training: Trading Plans

What Is A Trading Plan?

Trading is a business. If you want to be successful and profitable, trading can not be a hobby. Hobbies are activities upon which you spend money for your enjoyment. Your trading should not be that way. If you want to be successful, it must be treated as a serious business. And no business person would consider starting a business without first creating a detailed business plan. That’s what your trading plan is, a business plan detailing how you will operate your trading business. You trading plan should contain details such as:

  • How will I fund my trading business?
  • How will I continue to educate myself in trading?
  • What trading instruments will I trade?
  • What trading tools will I use?
  • What broker will I use?
  • What size trading account will I start with?
  • What trade entry strategies will I use?
  • How will I take profit on my trades?
  • How will I close out a losing trade?
  • What are my overall profit goals – daily, weekly, monthly
  • What days will I trade?
  • What hours will I trade each day?
  • How will you log your trades?
  • How and when will you analyze your historical trades?
  • When will I withdraw my profits from my account?
  • What will I do with my profits?

Some traders won’t need to answer all of these questions. And new traders may not even know how to answer many these questions. So you can think of your trading plan as something that will mold and evolve as you learn more and get more proficient at your business.

Why Do I Need A Trading Plan?

Once you start to develop your trading plan, the answer to this question will become abundantly clear. Trading requires discipline and discipline can only be started with a plan. For now just know that having a plan will help to keep you on track and help you grow as a trader. Your continuing education as a trader will come, not only from other traders, but from analyzing your own performance and studying your own emotional makeup – yes, trading will show you emotional responses you never knew you had. And the only way to keep track of these things is to stick to your plan. Your trading strategy plans, your analysis plans and your trading logs will all help you stay with the program and become successful.

How Do I Prepare My Own Trading Plan?

The most important thing about your trading plan is that it should fit into your life and goals. If the plan doesn’t fit your life, you are unlikely to stick to it long enough to be profitable. Start by answering these questions:

  • How much time do I want to trade?
  • What times of the day are best for me?
  • What time frames are best for me?
  • How much do I want to make?
  • What skills do I already have and what skills do I need to learn?
  • What weaknesses will I need to overcome?
  • Will I be using market fundamentals or technical analysis for my trading?

These answers will for the basis for your trading plan. Next you will need to find a strategy that fits your needs. If you are a new trader, I recommend you find a tested strategy to learn. After you have some experience, you can develop your own strategies. Our own Strike 3.0 strategy is a tested and successful trading strategy (execute shameless plug, check.) If that doesn’t fit your needs there are quite a few reliable sites that have strategies that you can try (forexfactory.com is a good place.) Selecting a successful trading strategy is beyond the scope of this training, so we’ll move on. Your trading plan should include the following information about the strategy or strategies that you choose to use (answer each of these questions for each strategy in use):

  • What instrument (or instruments) will you be trading?
  • What broker will you use?
  • With how much you will fund your account?
  • What are your entry rules?
  • What are your risk rules?
  • What are your trade management and exit rules?

Next, your plan should include how you will handle your profits:

  • Will I leave my profits in the account to grow the account?
  • If not, when will I remove my profits?
  • How much will I remove?
  • What will I do with the profits? (party, take a vacation to Fiji, buy a sports car, invest in real estate, all of the above, etc.)

Lastly you should include rules regarding when you will stop trading:

  • How many losses can I take before I take a break?
  • What days will I NOT trade? (Holidays, low liquidity days, news days, etc.)
  • How much time will I take to prepare for my trading week?
  • How much time will I take to prepare for each trading day?

Remember, it’s important to follow your rules when you trade. But your rules are not engraved in stone. You wrote them, you can change them. But don’t change them without a good reason – and one single lost trade is not a good reason.

It’s very important that you write your trading plan before you start trading. You may not know all of what it needs to contain, but you can adjust it as you proceed. Just be sure you have a direction before you start your walk.

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Tim Black

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  • Kutub Abdullah

    Good Article. A trading plan is always needed for proper trading and profitable trading structure. We are here in the market for profits and with overall context and content of Forex trading we must also ensure that our trading plan matches with the trading conditions. If we are looking for short trading we need a broker who provides lower spreads and in that case i prefer Trade 24 as one of the lowest spread provider for all kind of traders and clients of them. I also trade for long term as well and which is also quite well handled by the broker. I rate it 10/10 in every cases.

  • Great article! A trading plan is key to long term success in any market. A big part of a successful trading plan is choosing a profitable trading system. Money management and improvement (through tracking and journaling) is also very important. It’s hard to say what’s more important, because a great trading system combined with poor money management is doomed to fail.

    One thing I have to disagree on is using the Forex Factory to find a trading system. I love the Forex Factory, and I’m sure there are plenty of profitable traders offering their strategies, but finding a good system there is like trying to find a needle in a haystack.