Trade Plan

Trade Plan Guide

Skill Assessment
Are you ready to trade? Can you follow your signals without hesitation? Use what you know and Trust what you know. The real pros are prepared and they take their profits from the rest of the crowd who, lacking a plan, give their money away through costly mistakes.

Mental Preparation
How do you feel? Did you get a good night's sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the markets, it is better to take the day off - otherwise, you risk losing your shirt. This is guaranteed to happen if you are angry, hungover, preoccupied or otherwise distracted from the task at hand. Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone.

Set Risk Level
How much of your portfolio should you risk on any one trade? It can range anywhere from around 1% to as much as 5% of your portfolio on a given trading day. Two stop outs in a day and you should quit for the day. Its better to keep powder dry to fight another day if things aren't going your way.

Set Goals
Before you enter a trade, set realistic profit targets and risk /reward ratios. What is the minimum risk/reward you will accept? Look for setups that offer 1:4 or 1:5

Do Your Homework
Before the market opens, what is going on around the world? Perform your due diligence. Are overseas markets up or down? Are index futures such as the S&P 500 or NASDAQ 100 - Exchange Traded Funds up or down in pre-market? Index futures are a good way of gauging market mood before the market opens. What economic or earnings data is due out and when? Post a list on the wall in front of you and decide whether you want to trade ahead of an important economic report. For most traders, it is better to wait until the report is released than take unnecessary risk. Pros trade based on probabilities. They don't gamble!

Trade Preparation
Before the trading day, reboot your computer(s) to clear the resident memory (RAM). Whatever trading system and program you use, label major and minor support and resistance levels, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal. Your trading area should not offer distractions. Remember, this is a business, and distractions can be costly.

Breaks

Schedule breaks during the day and stick to the plan. All traders require down time to clear their head and re-energize.

Set Exit Rules
Most traders make the mistake of concentrating 90% or more of their efforts in looking for entry’s, but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally. Professional traders may lose more trades than they win, but by managing money and limiting losses, they still end up making profits. Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, a stop loss if the trade goes against you. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of the position and you can move your stop on the rest of your position 5 pts above breakeven.

DO NOT RISK MORE THAN THE SET PERCENTAGE OF YOUR CAPITAL ON ANY TRADE.

Set Entry Rules
This comes after the tips for exit rules for a reason: exits are far more important than entries. Computers often make better traders than people, which may explain why nearly 50% of all trades that now occur on the New York Stock Exchange are computer-program generated. Computers don't have to think or feel good to make a trade. If conditions are met, they enter. When the trade goes the wrong way or hits a profit target, they exit. They don't get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities. TRADE LIKE AN ALGO!

Keep Excellent Records
All good traders are also good record keepers. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day and record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit or loss for a particular system, draw-downs (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency) and other important factors, and also compare them to a buy-and-hold strategy. Remember, this is a business and you are the accountant.

Perform a Post-Mortem
After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so that you can reference them again later.

Disclaimer: Trading Stocks & Futures contains risk of loss and is not for all investors. The information on this site is meant for educational purposes only. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including, but not limited to: forum comments by the author or other posters, articles and charts, advertisements, and everything else on this site, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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