What is a Trading Plan?
First, it is important to make a distinction between: discretionary trading and systematic trading.
The discretionary trading is based on the observation of the markets and the manual opening of trade, in response to the information available at that time.
The systematic trading, instead assumes a certain level of automation.
Therefore, with regard to the discretionary trader will always be for him to decide whether to place or not his order, on the contrary, a systematic trader exactly follows the logic of the Trading System using, even if you can follow the strategic system in a total or just partial.
A trading plan is a scheme or set of guidelines, which helps you to outline your trading activities. This tool may be particularly useful for planning and implementation of a trading strategy.
There is no absolute model to be followed to obtain a perfect trading plan (every trader is unique and different styles to suit different people), but there are universally accepted elements to be taken into account in the drafting of a personal level.
The trading plan can be compared to a road map, where you can see the road ahead from where you are to what you want to achieve.
The trading plan can also be compared to a commercial level. Never avviereste a commercial operation without a viable plan: why should you then start negotiations without a trading plan?
While there is no absolute model to refer to draft a perfect trading plan, however there are some general rules that can be of help in most cases.
1. Put it in writing. physically you should write (or type) the reasons why you trade and the main objectives you hope to achieve. This will help you organize your thoughts, and to consolidate your plan.
2. Record your accomplishments. Develop a clear and concise method to record your trading activities. In planning a long-term strategy it is essential to be able to see the negotiations past and present, both from the learning point of view is to keep track of the markets in which you are working or to which one is exposed.
3. Check your finances. The capital management is another crucial element of the trading plan. You need a plan to manage your investments, especially your risk exposure.
Furthermore, other important elements are:
"The Time Frame to be used for the trading decisions"
Time-frame and trading style go hand-in hand; trader long-term use of long period and vice versa graphics. Although it is possible to incorporate more time-frame during the trading, we must determine on which "timing" will be set to one to define the rules of entry and exit from a trade.
"Indicators and settings applied to the chart"
The technical indicators, based on mathematical calculations, do not provide alone selling or buying signals, but can be used to highlight the trend stages, volatility, momentum, or volume. A trading plan should not be limited to the type of indicator, but it has to specify the settings. If we decide to use the "Simple Moving Average" for example, we will also specify whether it is an average 20 days or 50.
"Position sizing rules"
Position sizing refers to the value, expressed in US dollars (USD), which corresponds to a trade. It is common for novice trader start with a small contract at the time, however, regardless of the trading strategy that you choose to use it is important to monitor the framework of the initiated trade positions.
"Rules for the entry"
There are more conservative traders who prefer to wait several confirmations by the market, before opening a trade. Others, more aggressive, tend to look less confirmations. The rules for entry in the trade must be part of operations of both types of traders to represent a decisive tool for market entry.
"Rules for the exit"
People often say that a trade is always a winner, provided it exits the market at the right time. This is an overly simplistic view, but there is some truth. The exit point is the key to a successful trade.
The rules for the exit depend on many aspects, such as:
• Take profit
• Levels of stop loss
• Levels trailing stop
• Strategy stop and reverse.
First, it is important to make a distinction between: discretionary trading and systematic trading.
The discretionary trading is based on the observation of the markets and the manual opening of trade, in response to the information available at that time.
The systematic trading, instead assumes a certain level of automation.
Therefore, with regard to the discretionary trader will always be for him to decide whether to place or not his order, on the contrary, a systematic trader exactly follows the logic of the Trading System using, even if you can follow the strategic system in a total or just partial.
A trading plan is a scheme or set of guidelines, which helps you to outline your trading activities. This tool may be particularly useful for planning and implementation of a trading strategy.
There is no absolute model to be followed to obtain a perfect trading plan (every trader is unique and different styles to suit different people), but there are universally accepted elements to be taken into account in the drafting of a personal level.
The trading plan can be compared to a road map, where you can see the road ahead from where you are to what you want to achieve.
The trading plan can also be compared to a commercial level. Never avviereste a commercial operation without a viable plan: why should you then start negotiations without a trading plan?
While there is no absolute model to refer to draft a perfect trading plan, however there are some general rules that can be of help in most cases.
1. Put it in writing. physically you should write (or type) the reasons why you trade and the main objectives you hope to achieve. This will help you organize your thoughts, and to consolidate your plan.
2. Record your accomplishments. Develop a clear and concise method to record your trading activities. In planning a long-term strategy it is essential to be able to see the negotiations past and present, both from the learning point of view is to keep track of the markets in which you are working or to which one is exposed.
3. Check your finances. The capital management is another crucial element of the trading plan. You need a plan to manage your investments, especially your risk exposure.
Furthermore, other important elements are:
"The Time Frame to be used for the trading decisions"
Time-frame and trading style go hand-in hand; trader long-term use of long period and vice versa graphics. Although it is possible to incorporate more time-frame during the trading, we must determine on which "timing" will be set to one to define the rules of entry and exit from a trade.
"Indicators and settings applied to the chart"
The technical indicators, based on mathematical calculations, do not provide alone selling or buying signals, but can be used to highlight the trend stages, volatility, momentum, or volume. A trading plan should not be limited to the type of indicator, but it has to specify the settings. If we decide to use the "Simple Moving Average" for example, we will also specify whether it is an average 20 days or 50.
"Position sizing rules"
Position sizing refers to the value, expressed in US dollars (USD), which corresponds to a trade. It is common for novice trader start with a small contract at the time, however, regardless of the trading strategy that you choose to use it is important to monitor the framework of the initiated trade positions.
"Rules for the entry"
There are more conservative traders who prefer to wait several confirmations by the market, before opening a trade. Others, more aggressive, tend to look less confirmations. The rules for entry in the trade must be part of operations of both types of traders to represent a decisive tool for market entry.
"Rules for the exit"
People often say that a trade is always a winner, provided it exits the market at the right time. This is an overly simplistic view, but there is some truth. The exit point is the key to a successful trade.
The rules for the exit depend on many aspects, such as:
• Take profit
• Levels of stop loss
• Levels trailing stop
• Strategy stop and reverse.
