For many new traders, coming up with a trading plan is one of the difficult activities they must engage in. Trading without a plan is like blindly shooting in the dark. You're relying on luck to make money. And luck never works when it comes to trading.
After scouring the internet for good trading plans, I found that many of these did not cover the essential details. What many teach is how much to invest per trade. But they don't cover other important aspects.
That's why I've created this simple guide. Let's get started.
- 1 How do you write a trading plan?
- 2 Can I Alter My Trading Plan Any Time?
- 3 How to write a trading plan? 12 Question you could ask yourself
How do you write a trading plan?
The first thing you must decide when creating a trading plan is how long you intend to use it. It could be one day, a week or a month. My trading plans are usually designed to last 1 week. This gives me enough time to test it and analyze its efficiency. If it works, I'll continue using it for up to 1 month.
As long as I'm using this plan, I will document all trades I entered into. Luckily, IQ Option provides the trading history feature. This comes in handy when I want to have a quick glimpse of how my trades for a particular day did.
Who Uses a Trading Plan?
Unfortunately, not everyone uses a trading plan. A large group of traders choose to go for a no-holds-barred ride. This is a big mistake. A good trading plan is a set of rules for dealing in the market. It can be formalised and written down or it can be formulated in your head. It is important that it exists and it is important to stick to the rules of the plan.
Among professional traders, a plan is a basis for market action and almost everyone uses it. The plan has all the elements that allow you to decide whether to take a position or exit it. By trading according to a trading plan, we do not leave much room for the emotions that accompany decisions. In addition, we ensure repeatability of results and, if the results are unsatisfactory, we know what can be modified to improve the results.
How do I create a trade plan in Excel?
It is common practice to create the plan as a text document. This is one way. Some traders, depending on the complexity of the strategy, build so-called mind maps, in order to clearly write down the principles of the applied strategy, usually in the form of a branching tree.
A spreadsheet is a fairly good option. Google Sheets, Excel or open-source software such as OpenOffice Calc can be used for this purpose. All of these worksheets are based on a grid of fields with coordinates. This grid allows for an easy visual layout of the trading plan elements in tabular form. A spreadsheet is a great tool not only for building a plan but also for keeping a trading journal. You will find many resources on the web on how to use a spreadsheet. We recommend that you familiarise yourself with this knowledge.
What is an example of a trading plan?
There are many trading strategies out there. However, each trading plan should have one trading strategy. For purposes of this guide, I'll use the TLS method coupled with support/resistance and the RSI indicator. The Guide to Using the Trend Level Signal to Make $249 should get you started with this strategy.
The reason why I chose the TLS method is that it's simple to implement.
Asset and market to trade
Next, you'll need to decide which asset and market to trade. The asset could be a currency pair, stocks, indices etc. The market could be options, forex, CFDs etc. You should stick to one asset in one market. This makes it easier to keep track of your progress.
Once you've chosen your asset, you'll need to decide when to trade. This largely depends on your timezone and your trading strategy.
This covers three essential points.
The first is the amount you will deposit for the period of the trading plan. This is your account balance. Your objective is to deposit a specific amount and then use it to make a profit. If this amount is depleted, you should not make another deposit until you've created a different workable plan.
The second is how much you'll invest per trade. This could be a fixed amount like $10 per trade. It could also be profits made per trade allowing you to return the initial investment to your account balance.
Finally, you should have a profit target. Having an overall profit target allows you to decide how much you want to make per trade as well as how many trades you need to make to achieve this target.
Can I Alter My Trading Plan Any Time?
Sometimes, trades don't go according to plan. For example, you might suffer consecutive losses leading to depletion of your account balance. In other hand, you might reach your profit target sooner than expected.
So what do you do when such scenarios occur?
Do you continue trading or stop trading? This is a subjective decision only you can make. However, make sure that the decision you make enables you to protect your money rather than lose it trading on IQ Option.
This also involves deciding what to do when emotions start clouding your judgment. If you're tempted to increase your trade amount to recover losses, what do you do? This part involves identifying actions that you must take to prevent emotion-driven trading.
You've just learned the basic features that should go into your trading plan. Remember, a bad plan is better than no plan at all. Always ensure that you have a trading plan before making any trade. It could mean the difference between making money and losing it.
How to write a trading plan? 12 Question you could ask yourself
- How long will my trading plan be Used?
- Asset and market to trade?
- What trading strategy do I use?
- What expiration time do I use?
- What time frames do I Trade on?
- What extra tools do I use? >> Check our Free Trading Tools that can be accessed from the main menu of IQ Option Wiki website!
- Trading account Size?
- Money Management?
- Maximum Number of Trades per day?
- Maximum Loses?
- What are my Profit targets?
- What happens if I don't make my targets?
Summary of trading plan examples
Of course, your trading plan is personal, and you can adjust questions to yourself. There is no one right way to succeed in the financial markets. However, a trading plan is a tool worth having and using. When looking at successful traders, it is easy to see that they are those who follow defined rules. A trading plan allows you to achieve stable results. Preparing it requires a good strategy or portfolio of strategies. On our website you will find many strategies that are almost complete trading plan examples. Following a trading plan is a separate topic, more related to the psychology of trading.
You can also find many trading plan examples on the web. Remember, however, that in the end, it should be a plan adapted to your skills and abilities. All trading plan examples that you want to use should first be tested on an IQ Option demo account to see if the strategy works and if you are comfortable with the trading style you have chosen.
Kindly share your own trading plan in the comments section below, so other traders can learn from yours.
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