Creating a Trading Plan: 5 Steps

With a strong trading plan, you’ll understand what trades to place, when, and most importantly, why. It takes a lot of stress out of your day-to-day trading and gives you something to measure your results against.

Step 1: Decide on your trading timeframe

The timeframe you choose to trade within will affect everything, from how often you make trades to what kind of analysis you apply. In other words, you need to decide what type of trader you want to be (long-term trader, short-term trader, intraday trader).

Step 2: Choose your trading indicators

Many traders prefer to use two or three different indicators — and get a positive signal from more than one of them before making any trade. 

Step 3: Realise how much risk you can handle

Some of your trades will be losers — that’s just a fact of trading. You can control how much you’re willing to lose on each trade and how you can mitigate your risks.

Step 4: Decide when you’re going to open and close trades

This is also known as defining your entry and exit points — it’s the fine art of timing your trade to maximise your potential profits. You should define a target for each trade and exit at that point (taking profit). Equally, you define the maximum loss you’re prepared to take and set that as your (potential) exit point (stopping losses).

Step 5: Write down your plan and stick to it

Make sure you write down your plan. It may sound silly, but picking up a pen and committing your plan to paper will make you a more disciplined trader and more likely to stick to the plan you’ve painstakingly created.