Chapter 15: Developing Your Own Trading Plan
Because of our individuality, we all have different attitudes, different experiences and different levels of tolerance to risk. By developing your own trading plan, you are cultivating one of the two main qualities that are needed from trading discipline. The other factor needed is being able to stick to your trading plan. With a rock solid discipline as your foundation, your goal as a successful trader is only a matter of time.
So What Is A Trading Plan?
A trading plan is a systematic way of executing your trade based on your market outlook and analysis after factoring in your personal psychology and appetite for risk. Always bear in mind that regardless of how well drafted your trading plan is, it is useless if you are unable to stick to it. It is only those who kept an iron clad disciplined approach towards trading survive the ups and downs of the market and still come out ahead. With a trading plan:
- Trading is less chaotic as there is a road map to follow.
- You have little stress as you are more in control of the situation.
- You can monitor and track your performance and correct any shortcomings that you might have.
- You will reduce the number of bad trades that you will make.
- You can prevent any bad psychological bad habits from developing.
- Trading outside the comfort zone is easy as you know what you are doing.
- Any trading mistakes can be corrected quickly but things spiral out of control. Trading plans are developed to cater for various scenarios, best case, worse case and expected results.
A trading plan is dynamic. There is always room for improvements and adaptations. Nothing is set in stone. If the market situation requires you to adapt, then adjust your trading plan accordingly.