Creating Your Own Trading Plan

I’ve had the question of whether I have a trading plan template or anything like that I can provide or recommend a couple of times in recent weeks. In short, the answer is no, but that’s because I’m hesitant to recommend one.

You see trading plans necessarily must be very personalized things. That makes the idea of a specific template something difficult to contemplate. A template is rigid, and as such isn’t going to work for everyone or even necessarily for any given trader all the time.

With that in mind, I’m going to do a bit of excerpting from The Essentials of Trading over the course of a couple of posts to share my thoughts on how to put together a good trading plan. I’ll start of in this post by laying the groundwork.

What’s a Trading Plan?

The starting point of effective trading is the Trading Plan. One can think of it like a Business Plan for the trader. Just like the Business Plan, the Trading Plan is a specific outline of current status, objectives for the future, and the expected path to reach those goals.

In plain language, the Trading Plan is a set of rules governing the trader efforts in the markets. It brings together all of the what’s, when’s, where’s, why’s, and how’s of trading in an all encompassing definition of what the trader is seeking to accomplish and how he/she will go about trying to make it happen. The Trading Plan is the starting point for every trader looking to succeed in the markets.

Please note that while we may be speaking here in terms of the trader as an individual, everything presented is equally applicable to a fund or company environment. The Trading Plan still must be constructed, albeit from a different perspective.

Why does one need a Trading Plan?

The very simple answer is that it allows the trader to measure their performance in a very clear, straightforward manner, on a running basis. Just as one uses a map to both establish the path to be taken and to judge the progress which has been made, the Trading Plan defines the trading system and gives the trader benchmarks for use in judging their execution of it.

Be aware that a Trading Plan and a Trading System are two different things. The latter is, in brief, the way one determines entry and exit points the timing of trades, if you like. The former is more over-reaching in that it includes the Trading System, plus other important things like money management.

What is the purpose of the Trading Plan?

There are several reasons to have a Trading Plan, but probably the biggest is the way it simplifies things. A good, well thought out Trading Plan takes a great deal of excess thinking out of the trading process. Decision-making is very clear-cut. The Plan defines what is supposed to be done, when, and how. Trading can be a very emotionally charged venture. That can lead to all kinds of less-than-optimal behavior. The Trading Plan takes that out of the equation. Just follow the plan.

The Trading Plan is also very, very handy in helping one to understand the reasons for performance problems. If one is suffering from losses beyond what would be expected (as defined by the Plan), there are only two possible reasons. Either the Plan is not being followed, or the there is a problem with the trading system. That’s it. Without the Trading Plan, resolving performance issues is a much more complicated process.

While a Trading Plan is intended to help the trader succeed in the markets, having a Trading Plan is not a guarantee of generating profits. A Plan is only as good as the components in it.

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Technical Analysis Of Reliance Industries :

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Buy Reliance Industries (RIL) For A Target Of 920. Stoploss As Per Your Own Risk Levels.

DISCLAIMER:

Investing and Trading in any equity,future,gold,silver,forex and crude-oil is risky. My recommendations are technical analysis based on & conceived from charts. The information provided is not guaranteed as to accuracy or completeness. This is my personal view only.

Please consult your adviser or consultant or analysts before investing and/or trading. We assume no responsibility for any transactions undertaken by them. The author won't be liable or responsible for any legal or financial losses made by any.

Scientist Discovered Why Most Traders Lose Money – 24 Surprising Statistics

95% of all traders fail” is the most commonly used trading related statistic around the internet. But no research paper exists that proves this number right. Research even suggests that the actual figure is much, much higher. In the following article we’ll show you 24 very surprising statistics economic scientists discovered by analyzing actual broker data and the performance of traders. Some explain very well why most traders lose money.

1.80% of all day traders quit within the first two years.

2.Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.

3.Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.

4. The average individual investor under performs a market index by 1.5% per year. Active traders under perform by 6.5% annually.

5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.

6.Traders with up to a 10 years negative track record continue to trade. This suggest that day traders even continue to trade when they receive a negative signal regarding their ability.

7.Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity.

8. Among all traders, profitable traders increase their trading more than unprofitable day traders.

9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income.

10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios.

11.Men trade more than women. And unmarried men trade more than married men.

12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features.

13.Within each income group, gamblers under perform non-gamblers.

14.Investors tend to sell winning investments while holding on to their losing investments.

15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002.

16. During periods with unusually large lottery jackpot, individual investor trading declines.

17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss.

18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks.

19. Individual investors trade more actively when their most recent trades were successful.

20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.

21.The average day trader loses money by a considerable margin after adjusting for transaction costs.

22.[In Taiwan] the losses of individual investors are about 2% of GDP.

23.Investors overweight stocks in the industry in which they are employed.

24.Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

Conclusion: Why Most Traders Lose Money Is Not Surprising Anymore

After going over these 24 statistics it’s very obvious to tell why traders fail. More often than not trading decisions are not based on sound research or tested trading methods, but on emotions, the need for entertainment and the hope to make a million dollars in your underwear. What traders always forget is that trading is a profession and requires skills that need to be developed over years. Therefore, be mindful about your trading decisions and the view you have on trading. Don’t expect to be a millionaire by the end of the year, but keep in mind the possibilities trading online has.