Trading Plan - Trade for a living, invest for life   
 forex guideDiscover how I trade, with my FREE 55 page guide to forex trading! - Grab your copy now

In this easy reading guide, I reveal the tips, techniques and lessons that I have learnt which have helped me to become a successful forex trader.  Grab your FREE copy by simply completing the details below, and discover how you can follow in my footsteps, as I guide you along the path to success.

 

Trading Plan Strategy

Trading Plans: The first step in developing your online trading plan istrading plans writer anna probably the most difficult for many people, as we need to answer the following simple question : why do I want to trade?

A simple question, but one that is often not easy to answer, and certainly more difficult to put down in writing. Many people when asked this question simply say " I want to make a lot of money" Such a statement written in a trading plan is hardly useful as it ambiguous, and lacks any meaning whatsoever.

 What is a lot of money to you, may be a little to someone else. Try to have in mind the meeting with the bank and the business plan - if you sat in from of the bank manager and said that your objective for the business was to make a lot of money - would you be taken seriously - probably not.

The next question would almost certainly be " what do you mean by a lot of money"! Please also remember that your objectives do not have to be based on financial goals. They may be about improving your self as a person, developing personal skills for use at home or at work. One lady who contacted me recently was involved in the financial  world, and she felt embarrassed that she did not trade herself as all the men in her team told her they traded actively. ( whether this was true or not was a different matter entirely! - I suspect most of them did not!)

People start trading for many reasons, and it is this that you must define in order to start writing a plan. Below are some of the questions which you will need to ask yourself, in order to begin the process:

Trading Plans: Why Trade The Financial Markets

write a trading plan or lose moneyThere are many ways to earn a living or to have some fun, and trading the markets is only one of them. So you need to understand why it is that you are considering this as a strategy. Personally, I started trading for three reasons. Firstly, I find the financial markets fascinating. Secondly, having run my own business for many years, I wanted to develop income streams which I could run from anywhere in the world and which did not involve customers, delivery deadlines, or suppliers - in short a lifestyle decision. Thirdly, I wanted to provide quality free information on the web, which would help others achieve their goals and objectives ( particularly women ) as I believe everyone should understand and be in control of their financial investments. Now I could quite easily have started an on-line business of some description selling  services which did not involve  suppliers, customers, invoices etc but for me it was the markets which I enjoyed, and therefore set out to use them as the basis for my future. You have to be honest with yourself and play devils advocate to some extent - and answer the question as honestly as you can. If you cannot find a reasonable and believable answer which you are comfortable with, then I would suggest that perhaps you are  living the dream which is sold by many, of trading as a means to great wealth with no effort! ( sorry if this seems harsh but it is normally the case) In simple terms, you have to analyse your reasons, and be honest with yourself.

Trading Plans : Which Markets And Why

Let's assume that you have analysed your reasons and have decided that trading the markets is for you. Which markets are you going to trade and why? Another big question I'm afraid! There are hundreds of different markets to trade and many different instruments. How are you going to decide which market and instrument is right for you? To some extent the answer to this question will be intertwined with your answer to the above and your reasons for wanting to trade in the first place. Speaking from personal experience, I tried several markets before finally settling on currency as my preferred market which is principally geared for traders.  By this I mean, it is not an investors market and another question you will also need to address. Trading in stocks, is very different to trading in currency. The first is a cash market, the second is a derivative market. Trading in stocks is more akin to an investment approach whereas retail currency trading is simply 'betting' against a broker on which way a price is going to move.

So we have markets which are cash or derivatives, some are open 24 hours a day, others are not, some are more suitable for investment rather than trading, and so on! Some markets will be unavailable to you. For example your broker may not allow you to trade them without years of experience, or they may only be open when you are at work. All these elements will play a part in your deciding which markets to trade and why, and will all relate back to your answer to the first question.

Trading Plans : My Trading Personality

This is a question you have to ask yourself - is my personality suited to trading. For many people, the answer will be NO. On the making bread site you will find an introduction to the whole issue of who you are, and how it will affect your trading style, and indeed whether you will be able to trade at all - psychology of trading. Understanding your strengths, weaknesses, and core values will dictate not only how you trade, but all suggest the most appropriate markets to suit your personality. For  a light hearted look that will start you thinking, have a look at the trading astrology star signs - it is a bit of fun, but hopefully does make the point about your trading personality. Finally, read the article I wrote about trading and your  personality on the articles page - trading and your personality will take you to the relevant page on Making Bread, and it is the second article on the page entitled ' The Inner Trader And You'.

It is vital that you do not try to trade markets that are not suited to your temperament - an obvious question is how will I know without trying which is a fair point. I can only say that anything which is highly leveraged such as the derivate markets, tend to be higher risk than those that are not, for the simple reason that you can lose more than your initial stake.

Having said that, many of these markets now offer mini accounts or very small trading amounts. In spread betting for example you can trade contract for a few pence whilst you gain experience, and with currency you can open a mini account which limits price movements to a tenth of the normal contract size. My philosophy in all my trading has always been to start very small, and learn by making small mistakes. There is nothing wrong with trading a few pence or cents at a time, the markets will always be there for you, and you are far more likely to be successful taking this approach than any other. There is nothing to be embarrassed about - think of it this way - if your stake was a $100 and in a few days you had managed to make this into $200 by trading small amounts then you would have a 100% return on capital - not bad! - if someone asked what your returns were and you said 100%, they would be impressed. Trading and investing is about % return, not about how much money you make.

Trading Plans : My Trading Objectives

What do I want to achieve from my trading? Is it financial independence, a better understanding of the financial markets, self improvement, a part time hobby, a retirement project ? - any or all of these are fine, but you must define them first so that you have a clear idea of why you are trading and what you hope to achieve.

Trading Plans : Measuring Success

Within your plan you will need to have targets which define your progress towards your ultimate goals and objectives. These need to be well defined and achievable. These goals can be time based,  or financial targets, and you will need to measure them daily weekly or monthly. Remember that your trading plan is a living document so you may need to review these from time to time as you learn and gain experience. There is nothing wrong with this - the plan can be fluid, but the rules that you write within it must be fixed. Your plan is in place to help you achieve consistency in your trading by removing the emotions from decision making wherever possible.

OK - let's try to develop some online trading plans and see how we fit all the pieces of the jigsaw together.

 

Trading plans - next page