A good trader will never trade aimlessly. He will have his own trading plan before trading to help him identify trading opportunities and prevent chasing the market. It can be said that formulating and executing a trading plan is an important part of trading success. So, how to formulate and execute a trading plan? To figure this out, I think you need to understand the following concepts:
What is the meaning and characteristics of a trading plan?
What links should a qualified trading plan include?
What are the obstacles to executing the plan?
The meaning of a trading plan
A trading plan refers to the measures, methods and steps formulated by traders to achieve trading goals within a certain period of time. As the author of "High Probability Trading" said, a trading plan is like a businessman's business plan, and the content of the plan must be clear and unambiguous. Although it is not necessarily written, in order to better follow the plan and facilitate regular evaluation, it is recommended that traders use written form.
Characteristics of a trading plan
First, the plan must be foresighted. We make trading plans to predict the future, so before making plans, we must have a clear understanding of various possible situations and have a correct idea of the goals, measures and methods of trading. Therefore, without foresight, there is no plan, and foresight is the main feature of the plan.
Secondly, the plan must be procedural. In making a trading plan, what to do first and what to do later must be carefully arranged and required. When executing a trading plan, there must be stages and priorities. Therefore, when making a trading plan, there must be time requirements and corresponding arrangements for each stage, which must reflect the carefulness and procedurality of the plan.
The links included in the trading plan:
• In which markets will you trade?
• Which analysis tools to use?
• What is your market analysis when entering the transaction?
• What are the conditions for entering the transaction?
• How much risk will you take?
• What is the exit strategy?
• What is your expected operation time and performance?
• What are the possibilities of market development?
• How to achieve trading goals?
Which markets will you trade in?
The choice of trading market depends on your financial strength and trading strategy. For example, if you have 30,000 yuan, then you are not suitable to choose Shanghai copper for trading. Or if you are a trend trader, then you cannot choose to trade in products that are in a volatile market. Of course, the premise of doing this work is that you must establish your own trading strategy in advance.
Which analysis tools to use
About analysis tools, maybe you use some technical analysis or fundamental analysis, but no matter which one you use, you need to understand the principle of this analysis tool, and you can only use it after sufficient research and testing on its feasibility and success probability.
What is the market analysis situation when you enter the transaction?
Through analysis, you need to understand what the current market operation status is? Does it meet your trading conditions? What is your expectation of the future market trend? What do other people think about the current market?
What are the conditions for entering the transaction?
The conditions for entering the transaction are also trading signals. It must be based on a solid and logical theoretical foundation, must be clear and unique, and cannot be ambiguous. And like the analysis method, it must also be fully evaluated and tested. You need to understand what the development of successful trading signals is? What is the development of failed trading signals?
How much risk will you take
The most important thing in trading is to learn to protect yourself. Therefore, before any transaction, you must be clear about how much money you will invest in this transaction and how much risk you can bear. In other words, if you make a mistake in judgment, what is the maximum loss you can bear from the mistake? Can you bear the loss caused by this transaction mistake? Will it have a negative impact on you?
What is the exit strategy
The exit strategy includes three aspects: one is the exit strategy for misjudgment, that is, the stop loss strategy; one is the exit strategy for successfully completing the transaction with profit; and the other is the strategy for how to exit when the price changes over a period of time do not move as you expected. The most difficult part here is the formulation and implementation of the stop loss strategy. The premise of setting up a stop loss is that you must understand under what circumstances your judgment is wrong, so we mentioned before that you must understand the principle of the judgment tool. The difficulty in executing stop loss is that stop loss involves the negation of one's previous judgment and the acceptance of the reality of capital loss. Obviously, this is a great challenge for traders, so the execution of stop loss is far more difficult than the execution of stop profit.
What is your expected operation time and performance?
When you start a transaction, you should have an expectation of its future development in terms of time and price movement target, which is crucial for your future monitoring.
What are the possibilities of market development?
We know that the development of the market is uncertain, so we must have a foresight in our hearts about how many possibilities there are in the market in the future. On the one hand, this involves your fund management. If you can keep the uncertainty of market development in mind, then you will never operate with a full position, because no one can ensure that accidents will not happen. On the other hand, multi-faceted expectations can reduce the possibility of emotional and sudden decision-making transactions.
How to achieve trading goals
In this trading task, do you plan to increase your trading results by increasing your position? If so, under what circumstances do you plan to increase your position? If the increase in position fails, what exit strategy do you adopt? Is it to exit the transaction with part or all positions?
After clarifying and completing the above work, the formulation of the trading plan is basically completed. However, this is just a good start for a transaction. The more important task is to resolutely and quickly execute the trading plan you have formulated. Although some traders have never formulated a trading plan among all traders, it cannot be denied that too many traders have never executed the trading plan they have worked hard to formulate. The transactions they have made are all transactions they have never planned. The reasons for this come from two aspects. One is the wrong understanding in thinking. The other is the lack of self-discipline. For a long time, many traders have used loss or not as a criterion for measuring the success or failure of a transaction. It is this wrong concept that makes people's behavior deviate from the right track. The success or failure of a transaction should not be defined by whether the funds are lost or not, but by whether your plan is implemented and whether the risk is controlled. If you can execute a transaction according to the plan, then even if the transaction is lost, it is a successful transaction.
Finally, it should be explained that the trading plan, like the trading diary, also needs to be constantly checked and reviewed. In regular inspections and reviews, you will find out which aspects you have neglected and which areas need to be improved. After improvement and improvement, your trading performance will be improved step by step.
