Trading Plans
Home Page: The concept of a plan is accepted as standard practice in
every
walk of life, whether in business or in our personal lives, yet
in trading no-one ever has a plan.
Everyone plans, whether it is a holiday, starting a new business, planning a family, or planning for retirement, we all plan in some way and at some point in our lives. Some of us have five year plans in our personal lives setting out our personal goals and aspirations of where we want to be in the next five years.
Battlefield commanders plan their campaigns, political leaders plan their strategies to win elections, business leaders plan the future direction of the business either operationally or strategically. In short we all plan to succeed. And yet in one field of endeavour most people have no plan whatsoever - this field is of course in trading. Nobody ever has a trading plan!!!
For those of you who have found your way here from my Trading and Investing Site - Making Bread, you are no doubt already familiar with my background as a full time forex trader. For those new visitors - A very warm welcome - All the information on my sites is provided free of charge, and I am always happy to answer any questions, just click on the ask Anna link above to send me an email. I speak from experience, and yes, I have always made money in the all the markets I have traded. The trading site provides a comprehensive introduction to many aspects of trading, and I am currently developing several other sites, such as this one, which focus on particular aspects of trading such as forex, options, call writing, and technical analysis.
Trading Plans: Trading With No Plan
I have often tried to rationalise why it is that most traders have no plan whatsoever. It seems to be a combination of several factors but the primary one's I believe are as follows :
- They have no idea how to write one
- They do not consider it necessary
- It is boring
- Making money is much more fun
- Successful traders don't have plans
- I have a mental plan
I am sure you have all come across the saying that goes something like this : " the person who fails to plan is planning to fail" - it has never been more appropriate than in the business of online trading. Notice that I call it a business, because that what it is. I make my living from trading and therefore to me it is a business. If you are involved in trading for fun, I would suggest that you try online poker or online gambling, as you will still lose all your money, but it will give you your adrenalin fix, and you will enjoy it more. Trading is a business, short and simple. It is about making money, and like any other enterprise requires planning and attention to detail if you are to succeed.
Of the six points listed above, the one that I hear most often is number 6, which is that he or she has a plan in their head. So to you use a business analogy for a moment, when approaching your bank for a business loan for a new venture, your response to the question " may I see your business plans" would be " don't worry, I have it all in my head" - I don't think so!!!!!! One of the first rules of a trading plan is that it must be written down. You might ask why? - good question - it is simply that if it is written down you will adhere to the rules you have written for yourself. If it not committed to paper, you will not.
It is much the same as with a stop loss. When I ask traders where there stop loss is, they say " I only keep mental stop losses". The reason they do this is fear that they will be forced to stop a losing trade. With a mental stop loss they can keep moving it down mentally which defeats the whole purpose. I have never yet found a successful trader who works with mental stop losses. These traders trade using emotion - a hopeless way to trade - you will never make money as the twin emotions of fear and greed will always be your enemy. We have a plan for a reason. It defines your trading in a set of simply stated goals, rules and objectives. It provides the foundation and the framework for your business. You could give it to someone to read and it would make perfect sense as a business plan. This is the purpose of this site in a nut shell - to help you write a simple, clear and concise trading plan, that would make sense to a non-trader. The fact that they do tells me everything I need to know about them as a trader which is :
- They are unable to take a loss
- They trade using emotion
- They have no plan
- They live in hope of making a profit
So where do we start - as always at the beginning and as simply as possible by defining our goals and objectives before we can begin to write our online trading plan.