How To Make a Trading Plan


This time we are going to touch upon one of the basic things that every aspiring trader should have: a trading plan. Many people, after reading silly articles on the internet, confuse a trading plan with the rules of your trading strategy. Well, they are two different things. If you want to know what is a trading plan for forex trading, what it should contain and how to make it, you will learn after reading this material.


How to make a trading plan for forex trading?


4 obligatory documents for a trader every trader should have 4 documents, thoroughly drawn up and spelled out both electronically and in hard copy, namely:


- Trading Strategy Rules

- Checklist for entering a trade

- Rules of Money Management

- Trading Plan


1) Rules of the strategy - clear rules for entry and exit transactions, also describing: trading hours, timeframe, currency pairs, elements of analysis, and other nuances, directly related to opening and closing transactions.


2) Checklist for entering the market - the list of conditions for transaction opening. You put a tick against each of these conditions, if at least one of them is not satisfied - you do not enter the market.

3) Rules of money management used - clearly spelled out instructions for calculating the size of the position. Be it % of the deposit, N lots for X balance units, or other methods of calculation of the order size.


4) Trading plan - a road map that answers ALL the possible "what if" questions in your trading. Most often a trading plan is advised to include both strategy rules and money management and a bunch of other unnecessary stuff. I'm against having everything in "one pile". Because with a big amount of information you simply will not pay enough attention to it, and it will turn out that you do have a trading plan, but it is of no use.


What should a trading plan consist of?


Below is a list of parameters a trader should include in his trading plan. They are categorized and examples are given. Don't forget that these are just examples - you will need to make specific points on your own, based on your trading strategy, money management, overall risk level, and views on the foreign exchange market.


1) Force Majeure

You must clearly spell out (as well as take the necessary preparatory steps) what you will do if: power outage, "fly" windows, shut down the Internet, an invasion of aliens starts....

Precautions against such circumstances usually include: a laptop with a charged battery (in addition to the main computer), a smartphone/tablet with installed mobile MT4, VPS-server, 3G-modem or smartphone with modem mode, a list of nearby cafes with free WI-FI, phones of friends who live nearby.


2) Restrictions on profits and losses

It should also be spelled out what you will do in case of large profits, sufficient profits and a series of losing trades. Everything here is highly individual and depends on your trading style and risk. A few examples to give you an idea of what we are talking about:


- "After I reach a profit of 20 pips, I do not trade on that day anymore." (Note that 20 pips is a profit limit per day, not a goal. This is important - setting a profit target is very dangerous.)

- "After 5 losing trades in a row, I take a break for a week."

- "If I have a 20% drawdown, I stop trading for the rest of the month."

- "If I earn 10% - I do not trade this week anymore".

- "If I get three stop losses on one pair, I don't trade it that day anymore."

- Etc.



3) Emotional states - when you can't trade

- "If I'm sick, I don't sit at the computer that day."

- If I'm depressed, upset, depressed, or just want to sleep, I shouldn't get into the terminal.

- "If I am too excited, angry at someone/something, unable to concentrate, excited about something, enthusiastic, scared, nervous, etc. - I won't open a trading platform."



4) Complex trading tactics

If you use several trading strategies, then describe the conditions, when which of them to use.

For example:

- "If the market has been trending for the last week, I apply strategy X, if the market has been flat - strategy Y"

- "The Expert Advisor enters the market, then I disable the Expert Advisor and manage the position by the rules of strategy Z."


5) Sources of information used

Examples:

- "I watch the list of upcoming news in the economic calendar, I do not trade half an hour before and half an hour after important news. If there are Non Farm Payrolls on that day, I do not trade at all."

- "I mark possible sets on the chart, but I check the analytics before I enter into trades. If there are contradictions, I recheck the opportunity to enter.


6) My trading objectives are long-term and short-term.

It's important to keep a memo in front of you - why are you doing this in the first place. This will help you both come back from heaven (why do you need 100500 trades a day, if your goal is a stable 10% a month), and keep in mind the long-term plans in times of drawdown.


Examples:

- "My goal is 5% per month. So, I understand that chasing the number of trades and looking for entries where there are none is stupid."

- "Trading is interesting to me as a hobby. I'm earning enough as it is. That's why I do not risk more than 0.5% in a deal."

- "I like the market as a source of adrenaline. I like risk and I like to win. I understand that this approach is dangerous and I never deposit more than the amount I don't feel sorry to lose."

- "I borrowed 10,000,000 rubles from bandits. I understand that if I don't pay them back 12,000,000 in a month, they will kill me. Good luck to me."