What’s the Recipe for a Successful Trading Plan

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SUMMARY

In this video, you will learn about the recipe for a successful trading plan.

When I first started out, I attended a lot of seminars and read a lot of books on trading plans, but the one thing never explained was what should be included in a trading plan.

I will cover all of the key points you’ll want to include in your plan, including:

Your Mission and Purpose of Trading
Your Trading Goals
Skill Assessment and Love
Daily Rituals and Actions
Risk Management and Position Sizing
Trading Systems
Market Analysis
Constant and Never Ending Review

By creating a strong trading plan, you will be able to successfully reach your goals. Your plan is an evolving and changing document, so don’t feel it has to be perfect. Stick with it and you will be rewarded with a financially sound future.

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TRANSCRIPTION

Hi, It’s Terry Tran here from the FreedomTrader.com, the place to be if you’re looking at creating financial freedom safely for yourself, and your family.

Not long ago, a listener of our podcast asked the question:

What’s the Recipe for a Successful Trading Plan?

When first began, I spent a lot of time thinking about trading plans and how to create them.

I read a lot of books and attended seminars, and while they all tell you a trading plan is necessary, they never explain what needs to be in it.

So, what exactly is a trading plan?

It is a simple document, which details your mission and purpose for trading and investing,

your goals, your daily routine and actions,

your risk management criteria and position sizing rules,

your trading and investment systems and your market analysis.

Just avoid falling into the trap of trying to draft the ‘perfect’ plan.

I made that mistake and it held my progress up for months.

Keep in mind that just like other aspects of life that evolve over time, a trading plan does too.

It is never a final document.

Now, let’s take a look at what will be the essential elements of your trading plan.

  1. Your Mission and Purpose of Trading

What is your ‘Why’?

If you don’t know this, you run the risk of quitting when things don’t go according to plan.

This is a common scenario as you are dealing with unpredictable markets.

So your first mission is to figure out your why.

 

  1. Your Trading Goals

Think of it this way- purpose is your why and your shorter-term targets are your goals.

So, for example, instead of looking to achieve unrealistically high returns,

it would make more sense to aim to complete a trading course for example.

After you’ve done that, then your goal may be to start trading live.

Taking small steps over time will eventually lead you towards your ultimate purpose.

 

  1. Skill Assessment and Love

You might ask, what does love have to do with skill assessment?

Well, the purpose of skill assessment is to do an honest assessment of your trading and investment skills.

When I refer to love, I mean love for the markets in which you are interested.

There is a wide variety of markets out there, but it is best you define your affiliation with one, stick to it and be good at it than trying to tackle all at once.

In the end, you will find the love for one market compared to another.

 

  1. Daily Rituals and Actions

If you look at those who are successful in life, you will find that they have a regular set of behaviours or actions that work towards the completion of their goals and the achievement of their purpose.

These actions have become so familiar to them, that they become automatic.

So find what works best for you and makes your trading effortless.

 

  1. Risk Management and Position Sizing

Most people pay more attention to returns rather than risk.

However, my philosophy is to look after the risks and the returns will then look after itself.

What is your maximum combined risk for your total portfolio and your individual trades?

It is vital to know this before you set foot in the market.

 

  1. Trading Systems

I haven’t mentioned entries and exits up to this point because without mastering  risk management, entries and exits are a moot point.

When risk management is in place, the pressure to have a perfect entry and exit on every individual trade is relieved.

Most people make the mistake of focusing on the entry, but ignore the time and place to exit.

Don’t even think about entry if you don’t have a sound exit plan.

So, set up your system plan and vow to never change that plan when the markets are open.

 

  1. Market Analysis

Another mistake novice traders make is focusing on just the stock they are about to get into, but ignoring the general market environment.

Always look at the big picture.

This will clue you in to the risk level of the market, tell you to either step back or, if you chose to enter, how much to invest based upon the present market risk.

 

  1. Constant and Never Ending Review

This last ingredient is one of the most important parts of trading.

Here’s where you have the opportunity to see how much you were able to stick to  your plan and rules of execution with each trade.

It does take time, but these are the elements that will ultimately lead to your success as a trader.

Today, we learned about the vital ingredients of a trading plan. These include:

  1. Your Mission and Purpose of Trading
  2. Your Trading Goals
  3. Skill Assessment and Love
  4. Daily Rituals and Actions
  5. Risk Management and Position Sizing
  6. Trading Systems
  7. Market Analysis
  8. Constant and Never Ending Review

A solid trading plan fundamental to which successful trading is built on.

Just be careful not to attempt to create a ‘perfect’ plan.

Always remember that trading plans evolve over time and they are never a final product.

 

Thanks for watching!

Love you to like and leave a comment of any takeaways you got out of today and even share your investment or trading journey to date.

Talk soon.

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