Your Trading Game Plan

Your first step to being a successful trader is developing your game plan. This is your blueprint of how you will approach and navigate through the markets every day. Write it down, and consistently review it. Be as detailed as possible when writing out your trading plan.

Your answer to each of the following questions should be your trading game plan:

What is your identity as a trader?

All traders should have one. Are you a Scalper, Day-trader, Swing-trader, Trend trader, Long term investor? It is ok if you trade more than one style, just specify so in your plan and not week to week as you trade. Also, are you a long only or short only trader, or will you trade both long and short?

What markets will you trade?

Money can be made trading stocks, futures, forex, options, synthetics, crypto, bonds etc. It is best to focus on specific markets to trade. Be as detailed as possible. You can narrow it down by any criteria you may like. Find what fits your personality and trading style best; stick to it! It can be difficult trying to hop around day to day and is not necessary.

What trading strategies will you use?

Keep it simple. Pick out a few key systems and stick to them. A trader can be successful with only 1 trading strategy. I believe it is important to have a few that you use. Keep the rules as simple as possible. You should be able to write down the rules of your trading system on paper the size of a cocktail napkin. Know exactly how you will enter each trade.

Make sure you do extensive testing on a new system before you go live trading it.

Risk And Position Sizing Method?

This is critical and the first step in controlling your risk when trading. Setting your risk and position size go hand and hand with each other. Know how much money you will risk per trade. Your goal should be to risk the same amount of your trading capital on every trade that you take. Base this on a percentage of your overall trading capital. Don’t overtrade and risk too much money on any one single trade.

Next would be to set the size of your position. Professional traders put a strong emphasis on proper position sizing. After you determine how much capital you will risk on a trade you can set your position size. Base this on the current volatility of whatever it is that you are trading. A more volatile pair should require less of your capital; and more capital should be allocated to pairs with lower volatility.

Use Average True Range to measure volatility.

It is very important to have these parameters set in your trading plan. Many people overlook and underestimate knowing in advance exactly how much money they will risk on a trade. Also, a lot of traders operate without a consistent method when setting position sizes. Knowing what you will risk on a given trade and how to set your positions is an important step to ensure that you will have a long career trading the markets.

What is your exit strategy?

First, you need to make sure you protect your downside on each trade.

Stop losses should be used every single time no matter what. Your parameters on how you set your initial stop-loss should be set in advance. There are several different methods to use and they are all ok. The important thing is to pick one. Protecting your downside is the most important thing when trading. Never, never remove or disobey a stop-loss. That is a recipe for disaster when trading.

Second is how you will take profits. Have a specific way of locking in your profits. Whether it’s a specified price target or by using a trailing stop loss. Make sure this is determined before a trade is put on. If you try and decide when you should take a profit when you are already in a trade, your emotions will take over. Fear of a winning trade becoming a loser or greed of wanting to make more money will impact your decisions. Your goal is to trade with as little emotion as possible so, have your exit strategy firmly set before entering a trade.

Having a strict exit strategy in place also reduces the time you need to be sitting glued to your computer screen. Staring at your monitor after a trade is put on will never make you more money. By having these details worked out you can simply put a trade on; set your exit parameters and that is it. Let the market be your best employee and do the work for you!

Are there any specific occasions when you will not be trading?

An example of this would be day-trading on a Fed day, or putting a swing trade on very close to an earnings announcement. Some traders don’t like to have risk during holidays as volume might be light. Maybe at certain times of the year when you have a lot of other things going on in your life. This is a very personal part of your trading plan that is specific to each trader. Take some time and think about this one, as it can save you a lot of money in the long run.

How will you track each trade?

Have a way that you will track each trade you take. This is simple but worth doing. It is great to take time each month and look back to review your trades. This is how you can make sure you have been executing according to your game plan. Make a spreadsheet and include:

• Date
• Market or stock traded
• Entry price
• Risk
• Exit date
• Exit price
• Profit/Loss
• Notes on the trade

You can include anything else in your game plan that you feel is important to your trading success.

A strict game plan is a trader’s biggest ally. By having one, you take the guesswork out of trading. The key is to be mechanical as possible at all times. Trust and believe in your plan. I can’t stress this enough! Always remember that if you do the work, the profits will follow!