Like anything in life, if you want something to get done, you need a plan.
The failure rate in trading is high. One of the biggest reasons for this is the low entry level. Anyone can open an account. Anyone can hit a buy button or send in an order to his broker. Nobody asks if you know what you are doing.
To make things worse, it appeals to many people that are in search of easy money. It looks easy. Just buy what goes up and sell what goes down. Who needs a plan for that?
Well, if you are reading this, then you already know that it is not that simple. Trading is never easy. Besides that you must ‘know’ when to buy and sell, you have to deal with a lot of outside hurdles that can prevent you from making money out of the markets.
To tackle all these hurdles, you need a well-thought-out and written trading plan.
Your trading plan should have the following pieces in this order:
- Your objectives.
- Inventories.
- Your beliefs and ideas about the market, money, and life in general.
- A system (one or more) that takes advantage of your ideas about the markets, this includes setups, entries, exits, and other filters.
- Position sizing and risk management.
- Checklist and control adjustments.
As you can see, it is not a piece of paper that you will write in one day. Every step needs careful considerations about who you are and what you want to achieve. Many of my students take their time for making their trading plans. Not days, but months...
In the next few blogs, I will address some of the pieces of a trading plan.
I wish you stress-free trading.
Daniel.
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