How to Create Your Trading Plan?
Planning is one of the most important project management and time management techniques. Planning is preparing a sequence of action steps to achieve some specific goal.
When following a plan, a person/trader can see how much they have progressed towards their project goal and how far they are from their destination.
Points to Remember
- If you do not have a plan, any goals and objectives are just dreams, just wishful thinking.
- If you don’t have a trading plan any entry or exit you make is a mistake before you even commit to that trade.
“Right, So you call yourself a Trader?” She Asked. “Yes Madam” He replied.
“Ok then, Where is your trading plan?”
I ask you this, are you a trader? if yes, where is your trading plan?
if you don’t have a trading plan, you are not a trader, you are a gambler without an edge.
Having a Trading Plan is an absolute must. A good trading plan has the following aspects.
- Comprehensive and detailed trading plan
- Covers all aspects of your life
- Your personality and lifestyle
- List of Goals and Objectives
- Disciplinary Rules and
- Revision schedule
A Trading plan is like a personal constitution.
If you are one of the organized people and already have detail and a well-documented written plan for your life, then it will be easy for you to incorporate your trading plan into your current general plan.
The most important part of any plan for life or anything in life is Goals and Objectives. It gives you purpose.
In fact, a big majority of people have never asked this question in life.
- What is my purpose?
- What do I want in life?
- Who am I?
- What defines me as who I am?
And if you don’t ask those questions, you won’t be able to answer the common interview question.
“Where do you see yourself in 5 years’ time?”.
If you never planned it, your answer would be meaningless and perhaps a clever interviewer will be able to judge that.
How to Create Your Own Trading Plan
All successful traders have a concrete precise and detailed trading plan that takes care of every aspect of trading. It covers daily routines such as what time to wake up and go to bed as well as what markets to trade, risk management and trading psychology etc.
In search of a perfect trading plan template, I stumbled upon a template for a trading plan. All thanks to Steve who shared it in the forum. And thanks to the writer of the trading plan template who has shared it with the world.
We have adopted this trading plan template. It’s a very useful and powerful Trading Template.
This template is divided into several sections that have their own specific objectives. It is a series of 52 Questions that you must answer. At the end of these questions, you will have a completed trading plan.
The following lesson will help you immensely in creating your trading plan.
How long will it take?
Following the trading plan template questionnaire/template, it should take just a couple of hours a day for a week to come up with a comprehensive trading plan.
The first-ever book that I had written actually evolved from my trading plan. I wrote a trading plan and kept reviewing and improving it. When I shared it with the public, that’s when I started modifying its format. So it morphed into a Book Format. Now, of course, the book and my trading plans are two separate documents. I will share both with you.
Special thanks to Steve for sharing this document and of course thanks to the writer Tim Wilcox.
“In order to succeed as a professional trader, it is often said that the aspirant must treat trading “like a business”. As with many of the clichéd phrases that litter the metaphorical trading floor, the importance of this statement is often overlooked, or the meaning misunderstood.”
Trading Plan Template aims to address these problems by examining some of the ways in which a trader might go about achieving this vital goal.
The Next Lesson is The Trading Plan Template. It is made of 52 questions spread across 10 Sections. Each Section has its own specific objective.
First, we shall get a general overview of what constitutes a trading plan and why it is prudent to have one, followed by
A detailed analysis of the various aspects that should be considered during the creation of a trading plan. This is a series of 52 questions.
This trading plan template asks various questions. Some readers might not agree with the order of the questions. The order of the questions asked in Tim’s trading plan format is of great importance. The order is the Secret.
The order might not look very logical for a beginner but this order itself tells you what should you prioritize more than others.
I have redesigned my trading plan and followed Tim’s format. Tim has come up with a simplified way to help any trader formulate a trading plan.
The First Objective: It took me over 3 weeks to answer the first question but that should not be the case for everyone.
You might be just starting and you may want to have a quick draft within a few hours or so. That’s totally fine as the trading plan is an ongoing document and it will get refined and more personal to you in time. But goal number one is to have a trading plan no matter what form, format or quality. Just have one and it will get refined in due course.
Your trading plan should have the following 10 parts and you should work on them in this order.
I’d like to give a brief summary of the main parts and questions of this document.
Objective 1: Know Yourself, Know Your Purpose.
In this first very important section of your trading plan, Tim recommends that you attempt to contemplate the following questions and find answers. For some, it might require a deep state of meditation and lead to great insight about themselves. So, Who are you? What is your purpose?
Objective 2. Trading Goals“Setting goals is an essential part of your trading plan”.
We used to have a servant. My mum used to send him for grocery shopping from the local markets but the problem with him was he was completely illiterate. Reading signs and counting was not his thing. Which is why he lost his way frequently.
Perhaps his sense of direction was pretty horrible. He used to mark objects on his path to navigate. While it was a clever plan there was one slight problem with it.
If you are going to use a “landmark” make sure its a permanent one. One day he got lost and I had to go and “fetch him” instead.
It’s a bit like a breadcrumb trail.
I followed his usual path and found him standing right in front of the shop still horribly confused. He could NOT see the shop. I asked him, “so why are you standing here?”. He replied, “damn it I can’t find the tree”. I said, “forget the tree, the shop is right in front of you”. He sighed in disbelief and with a sense of relief and said, “I kept searching for the tree but couldn’t find it”. I replied, “that’s because the council had chopped the tree that stood right in front of the shop.”
🙂 (true story)
A trading plan is your map.
Driving around, following traffic rules, and taking the correct tuns are your tasks and activities.
Arriving on time is your goal.
“When you plan your business’ future, you will generate a list of potential achievements you want it to reach. These are the goals.
The specific steps you take to get to those achievements are your objectives. The terms objectives and goals are often used interchangeably, but they each have important differentiating attributes. They are used at different stages of the business planning process, and each serves a different purpose.”
The template helps you formulate your trading plan by showing you what are the “Right” questions you must ask.
Question: What are your trading goals and objectives?
Question: Markets, Instrument, and Time Frames (often people simply address and think this to be a part of part 12)
Question: What are your Tools of Trade and so it goes on…
Most of the above has already been addressed by Tim Wilcox in his trading plan template.
I would like everyone to submit a copy of their trading plan in their Journal. I promise I will have a look at it myself and hope others will also have a read. We can comment and learn from each other’s great ideas and mistakes.
The 10 Parts of a Trading Plan
Objective 1: Know yourself, know your purpose
Objective 2: Trading Goals and Objectives
Objective 3: Markets, Instruments and Time Frames
Objective 4: Tools of Trade
Objective 5: Before the market opens
Now the Crux of it
Objective 6: Risk and Money Management (this would be the longest part)
Objective 7: Exit Strategy (this would be predefined and very objectively defined) But short and simple
and finally, at the end, we talk about entries
Objective 8: Trade Strategies, Setups, and Entries
and then
Objective 9: After the market closes
and the number
Objective 10: Discipline
So let’s start Building Your Perfect Trading Plan…