Hello traders! In every Online Trading Academy class that I teach, I will ask the questions, "Who has a trading plan? Not just one in your head, but one that is written down?" Students who are new to class invariably say no. What astonishes me is when a student who is retaking the class doesn't have one. Several times during our 5, 6 and 7 day classes, the topic of your trading plan comes up. If you have been to a class or two (or more!) and don't have a trading plan in writing, you are doing it wrong! The importance of a plan when you get into trading can't be emphasized enough. Would you open any type of business without some sort of plan? If you open a McDonald's franchise, do they say to you "Paint your walls red and yellow, sell some hamburgers and go make money!" ? I think not. This week's newsletter will give you some suggestions for your own trading plan.
Perhaps the most important section of your trading plan will be your risk management parameters. These rules should include things like: How much of your account will you risk on any individual trade, how much will you risk on a daily basis, what will you do if you hit your daily loss limit (go to demo, come back tomorrow), number of positions you will take on at a time, etc? In the beginning of your trading career, we like to suggest risking .5% of your risk capital on an individual trade, 1-2% on a daily basis and trade 1 or 2 positions at a time. These figures may seem a bit conservative to many of you, but trading is a marathon not a sprint. We want you to be a trader for life! If you trade too aggressively and risk too much of your account, your career will be a short one. As we've discussed in numerous newsletters, risk management is the Holy Grail in trading.
Trading strategies should also be included. My recommendation is to have two reversal strategies and two trend following strategies to get started. As a reminder, a reversal strategy could be looking for reversal patterns that are easy for you to see, and a trend following strategy could be a Fibonacci retracement or a trendline retest. Capturing screenshots of these strategies and including them in your plan will definitely help to reinforce what you should be looking for on your charts!
Making a list of your daily routine is important. This can be as extensive as you want to make it including things like eat a good breakfast, exercise, meditate, etc. Some basic suggestions would be:
1. Check your computer /internet speeds for any lag or data issues
2. Check yourself - do you feel good enough to trade today?
3. Economic calendar - any significant news today or tonight?
4. Any commodity action that can help make decisions? Things like oil, gold, and copper
5. Look at the bigger picture in your charts - daily and weekly time frames
6. Check your own personal chart time frames
7. Review your trades
I have seen student "to do" lists as long as 40 items! In class, we get to about 15. As we like to say, a pilot doesn't start to fly unless she checks her plane, and a trader shouldn't trade until their list is completed!
What are your goals? This should include both short-term and long-term. Some short-term goals could be to make 20 pips a day, supplement an income, save money to take a trip, etc. Longer term goals could be to completely replace a full-time job, start a hedge fund, buy a house, etc. Obviously, these will be very personal and unique to your own plan.
What type of entity will you trade in? Some possibilities are s-corporation, LLC, or an individual account. I strongly suggest you speak to a CPA or tax professional to decide what is best for your financial situation. A trader who owns several rental properties and has five children living in Canada will have different needs than someone with no kids living in an apartment in Nevada.
You need to have a trade review process. What will you be keeping track of? In previous Lessons from the Pros newsletters, I've suggested a few things such as chart time frames, currency pairs, time of day, patterns, setups, etc. Not every trader is good at every technique, so you should keep track of what you are good at and what you are bad at. Do more of what you are good at and stop doing what you are bad at! Make sense?
The last Forex class I taught in Irvine, CA had the most impressive student trading plans I have ever seen. Most classes will have one or two outstanding trading plans, with some plans needing a lot of work. A full 25% of class had terrific plans; way to go Irvine!
How many pages does your trade plan actually have to be? In my opinion, one isn't enough. Each of the above topics could be anywhere from a paragraph to several pages long so the total length of your plan will depend on how in depth you want to go. Hopefully this trading plan outline helps a bit, and the next time I see you in class, I will be impressed!
Source: http://www.fxstreet.com/education/trading-strategies/lessons-from-the-pros-forex/2011-08-09.html
Forex Trading Forex Signal Free Forex Signals Free Forex Signal Forex Trading Signals
No comments:
Post a Comment