A “Trading Plan” is a program used to regulate traders’ work routines and decisions during trading in the market. Allocate a few minutes with us to answer the comprehensive question of what is a trading program and discuss the reasons for its effectiveness.
A trading plan sets parameters for getting into and out of trades, how much money we put at risk, and strategies we take for profit. In other words, Trading Plan is a tool for taking the most appropriate action, changing the position, or moving along a safe path in the market to minimize risks and maximize the profit in further trades based on the market information.
What is the Importance of a Trading Plan & its Standard Structure?
Trading Plan is deciding on the investment method among the essential factors that require traders and investors in this field to build a trading plan and to choose the anxiety resulting from these financial activities in financial affairs.
What is a Trading Plan?
A trading plan is a plan that shows how a trader should take action in the trading systems in different financial markets and examines them during different and specific time intervals, for example, 1D (one day), 1W (one week), etc.
On the other hand, trading plans show the functioning of a trader in a trading ecosystem.
To Find Out What Precisely a Trading Plan is?
As the first step, we must demonstrate that a trading plan is a plan that covers the actions that traders have already taken and how to take further actions based on them during a trading process. It enables investors to move from a system format consisting of rules and instructions to actual trading.
What is the Use of a Trading Plan?
Having a plan, as the name “Trading Plan” suggests, creates discipline for everyone.
Suppose a trading program does not have such a feature. In that case, we highly recommend the shortlist ahead to improve the trading process.
- It allows traders to intervene confidently in predetermined areas and stop “following” the market accordingly.
- It also allows traders to enter the market at different levels and with predetermined risks, even if their initial decision and orientation towards the market trend are incorrect.
- To improve the organization and discipline in the trading process.
The Routine Before the Market Starts
This section represents standard -morals- that each time traders engage in their first trade in the market, which is primarily a personal process. Factors like marking charts, checking the news and relevant data feeds, checking existing orders of exchanges and brokers, and other market data belong to this extent.
- After-Market Routine: We make a reminder to record one day in the trading journal.
- Market: The title of this section says everything about itself, and all we have to do is collect notes from the market we decided to participate in as a trader.
- Orientation Bias: Such an issue may depend on a particular time frame or extended period. It can be recognized when we examine the period as a day (1D).
(For instance, assume the last daily candle on the chart indicates a bearish pattern, making us follow a sell rally during the new day. However, we still have another function option: switch it to the routine based on the price behavior during the day).
One more example to understand it better; Imagine today’s price of a particular asset may go lower than yesterday, and naturally, we may prefer to purchase the asset at the new price floor to profit during the pullback or the return of the price in Pivot Points.
We also can use the Orientation bias to determine orientation levels. These levels allow us to change the position to stop loss if the market trend changes.
- Fundamental Factors and News: News in this section means information about the specific market we are trading in, which would be a very determinative factor for us as traders.
- Dangers: This section covers the percentage of at-risk capital, how to scale it, and any points about compound interest, number of contracts, etc.
It is essential to check and perform strictly in this area carefully, which causes us to stay calm by the first dip of the market and spend the rest of the day at a loss.
What is the most appropriate answer to the question of what a trading plan is? A trading plan significantly impacts our trading strategy based on daily principles and causes the regular implementation of this routine. A trading plan does not need to cover all market movements. This program can be as detailed and rigid as you like or even as loose and general.