A Trading Plan is the set of written rules that are put on paper for every trade, before it is entered into. It’s the “Rules of Engagement” that tell you precisely when to buy, how much to buy, how to manage the trade and when to take your profits. A good trading plan addresses every foreseeable aspect of the trade and is focused on the primary objective of a stock trader - THE PRESERVATION OF TRADING CAPITAL!
Before entering any trade, you need to first measure the scope and scale of the risk the trade presents and ensure it is in line with your rules and objectives.
Here’s a Trading Plan showing the various components that need to be addressed when planning a trade. It should help you complete any trade with discipline and consistency.
Trade Details
Date
Market
Stock Code
Entry Signal
Confirmation
Risk Analysis
Entry Price
Stop loss Price
Initial trade risk (%)
Profit Target(s)
Reason for Target(s)
Potential gain (%)
Risk/Reward Ratio
Money Management
Total Account Size
Amount for this trade
Position size
Breakeven level
Order for Broker
no. of shares
Buy Stop / Limit
Stop loss
Take Profit Order Y/ N
Trade Management
Trailing Stop Rules
Pyramid Winner
Profit Taking
Exit Strategy for Trade
Time stop
other
Successful trading requires the meticulous planning of every aspect of a trade and the discipline to carry out your decisions based on your Trading Plan, in the market.