How To Create a Good Trading Plan

Profitable traders do not extensively believe in luck; their confidence is based on a well-structured and comprehensive trading plan that determines how they trade and manage their emotions while they trade.

A good trading plan should act as a guide and a landmark that helps traders avoid trading landmines and traps set all over the market.

So, do you want to be able to place good trades- and actually profit from them?

Maybe you could also earn millions of dollars like George. And break into the exclusive dorm of profitable trading, reserved only for 3 percent of the entire trader’s population.

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In this guide, I’d give you the uncanned version of how you can join the exclusive 3% group of profitable traders (If you read this entire article, you will learn everything about the successful trader’s approach).

Below, I’ve mentioned some of the important reasons why you should have a good trade plan:

Importance Of Having A Good Trading Plan

After trading for more than a year, I’ve come to understand the effectiveness and efficiency of having a trading plan. All successful professional traders have one they follow doggedly. And it guides them from missteps that would foul their portfolios.

I hope you are intrigued to learn about how you can create a good trading plan because,

Firstly, It’s the only way we cover our ass when we make a trade decision or place a trade.

Secondly, a trading plan would generously give you the confidence to hold out potential trade and see what becomes of them.

how to develop a trading plan
Image from forex.academy: link

A good trading plan would also help you sieve through your entry and exit strategy. To refine what works and toss aside what doesn’t.

Building a structured trading plan requires effort and self-awareness. Your trade plan and strategy should be an extension of who you are.

  • What is your risk tolerance?
  • How disciplined are you when it comes to following your trade plans?
  • What’s the size of your portfolio?
  • How reliable is your trading strategy?

Having a good trading plan is the hallmark of trading profitably, but there’s more. A good trade plan also helps you review your trade decision and helps you grow your intuition as a trader.

If it helps make a good trading plan, wouldn’t you want to know how to create a proper trading plan?

How “Expert Traders” Create A Profitable Trading Plan

In 1970, Bill Lipschutz, a now-famous and wealthy trader, flipped a $12,000 trading account into $250,000 -quite a lot of money for any trader even in today’s market.

Surprisingly, he lost everything in just one bad trading decision.

While he learned harshly from experience and later in 1985 earned a whopping $300 million from successfully making numerous profitable trading decisions, his experience teaches us that profitability only comes with being ardent with our chosen trading structure and plan.

bill lipschutz quote

Bill Lipschutz was legendary in his approach to trading. His years of learning how to trade gave him insight into strategizing and making great profits off the forex market liquidity.

Bill’s trading strategy is unique and still studied by many forex enthusiasts.

The genius of his method and the discipline that backed it makes it a game-changer. You can also learn step-by-step how to create a personal, reliable trading plan. 

STEP 1: Know Your Motivation

There are 10 different things you could be doing with your life right now. So, why do you want to trade?

What motivates you? Money?

Whatever your reasons for trading are, they’ve got to be enough to keep your trading. Times when trading wouldn’t seem as pleasant or as inviting as you expected. These are the considerable dark times in trading that can overturn your directional flow and perception.

Write out your motivations and ruminate on them.

STEP 2: Define Your Goals and Trading Style 

Defining your short-term and long-term goals is next in making a profitable trade plan.

Like you know, your trading plan will define your trading strategy, which determines when and why you enter and exit a trade. It is the groundwork for making reliable decision trading decisions in any market situation. And it also shapes how you view market moves and how you maximize the opportunity within those moves.

Defining your goal would and trading style prepares you on how to manage the future trading decision.

STEP 3: Master Your Risk Appetite

Overconfidence is a killer. Yet, it happens to the best of traders. It always creeps in unnoticed and probes you to act, like the sweet holy inspiration or sure gut feeling.

Nothing could go wrong. Haven’t you done this twice over? You’d keep thinking you are certain until you obviously err on the wrong side of the market moves.

Not everyone I know can risk $150,000 on a trade. Some people are much more comfortable when they enter a trade of $1000 risk per time, and others would live peacefully when they risk 3-figures or less on each trade.

A Well-defined trading plan has defined risk tolerance. The earlier you master and hone your risk appetite, the better for you.

I’ve heard trading experts emphasize risking just 2-5% of their portfolio on each trade. And honestly, it’s a strategy that works for me.

For example, placing a 3% risk of a $10,000 portfolio means you’d only lose $300 every time you’re mistaken. Isn’t that better than marking a massive loss of $10,000 on a single bad trade? Stop Loss is like seatbelts, and they’d help keep you from blowing your account ridiculously.

Know your risk appetite and master it! 

When you do, trading becomes easier and less stressful. You no longer have to stay worried all day, nor do you have to contemplate closing potential running trades because you are scared.

STEP 4: Understanding Your Trading Strategy

What do you see when you look at price actions? What are your triggers for placing a trade? Are you a day trader or a swing trader?

While swing trading or day trading, you have to be wary about big banks and liquidity purge moves that hunt you. Your trading strategy should ideally help you avoid these liquidity purges and traps that lay all over the forex market. It’s always in your favor to refine your strategies and be dynamic about how you swing trade and why.

Your confluence is important, and it must remain your “Go” signal for every trade.

Maybe you are the type of trader who uses major high time frame support and resistance levels Or, you trade a more conserved institutional trading concept like the break of structure and liquidity grabs.

Flesh out everything about your strategy with a pen and paper. State what your entry and exit criteria are and stick with these criteria when you trade.

STEP 5: Assess Your Trading Plan

Before trading, there are decisions you have to make. Frankly, these are important decisions that would determine your bearing and trading landmark.

Every successful trader has their valued landmark of trade decisions which includes:

How much capital to invest in their trading portfolio?

What commodities or forex metals to trade?

And in some cases, Which time of the day is right for trading.

STEP 6: Keep A Trading A Journal

Your experience as a forex trader is worthless if you don’t learn from it. But how can you learn from an experience you have forgotten?

Every trade journal is brim-filled with trade history, patterns, market play scenarios, and emotional stories that backed your valid trading decisions. Are your direct experience and personal market encounter of how the market played out in different scenarios.

Losing trade or not, everything should go in6to the trading journal. Write about what you saw in price action, state your profit target, state the triggers that set you in the trade, and why you exited the trades.

TakeAways

Are you ready to start using your trading plan And to place winning trades? Yes? Then get on with it; nothing should stop you now that you’ve read through this guide. Think about how you’d use what you have learned here. Where would you apply it, and how often?