Writing A Trading Plan

All professional traders have a trading plan. Trading futures is a zero sum game and those with a plan (and the discipline to apply it) will succeed over those that have no plan. A plan details the particular market anomaly that you intend to exploit - your edge. Human emotion creates anomalies - essentially, the fear and the greed of those that have no trading plan.

Creating a trading plan and rigidly applying that plan allows the professional trader to eliminate emotional responses from his trading.

Let's look at what your written trading plan should cover:

Trading concept - What anomaly is your trading strategy intending to exploit?

Timeframe - The shorter the timeframe the more trades that can be made. However short term trading leads to lower reward:risk ratio's and higher commission costs.

Instrument - There are many different ways to trade essentially the same idea - options, futures, exchange traded funds etc. Which offers the most reward for your trading concept?

Entry - How will you open your trade?

Exit - How will you close your trade - A stop loss should be placed at a point where the trading concept become invalid, this could be a specific price or a certain length of time. A profit exit must also be established - again either a certain target price or a timed exit.

Money Management - How much capital is required to trade the strategy and how much should be risked on each trade to maximise returns whilst minimising the risk of blowing the account?

End of Day Routine - At the end of each day every trade should be compared to the trading plan and any variances should be addressed. Remember the plan is their for a reason and you must trade it exactly. If a change is required then it should be properly tested before being added to the plan. No decisions should be made whilst a trade is live.

Brokers - Which broker will you use and how will you trade? Automating a trading plan through the broker's API will help to eliminate any emotional responses.

Your plan will require constant revision as the market dynamics change. If you have noticed a market anomaly then it's very like that many of your competitors have as well.

"If you don't know where you are going, any road will take you there." Lewis Carroll

Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.

More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Currency Trading Information:

Related Articles

ISO 4217 in Forex Trading
ISO 4217 is an international standard describing three letter codes to define the names of currencies established by the International Organization for Standardization (ISO).The first two letters of the code are the two letters of ISO 3166-1 alpha-2 country codes (which are similar to those used for national top-level domains on the internet) and the third is usually the initial of the currency itself.
A Look at Online Forex Brokers
An online forex broker is a firm that facilitates retail trading using Internet technologies. Global Forex Trading (GFT), one of the popular online forex brokers.
Facts of Day Trading
Are you thinking of entering the fast-paced world of day trading? Arm yourselves with the information from this fact sheet on day trading.What is day trading?Day trading is an investment tactic that does online daily stock trading with a relatively short investment.
FOREX 101: Make Money with Currency Trading
For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced.
Business and the Forex
The business world is a complex web of supply and demand. Money and goods, physical or otherwise, pass through the global market every single day.
Forex Signal Services
What are Forex signals? Forex signals are paid services offered by some brokers and independent Forex annalists. Companies that offer forex signals monitor and analyze the market for you, providing you with their data via desktop alerts, email or even SMS and pager alerts.
Intrenet Marketing VS Forex Currency Trading
Have you noticed that when someone's trying to sell you something - such as a system for making money - they always make it look far easier than it is? Let's look at two Internet businesses, almost as diametrically opposed as it's possible to be - Internet Marketing and Forex Currency Trading.You've probably heard the old Internet adage - build a better website and they will come.
Trade Exit - How To Cut Losses And Let Profits Run
Cut your losses short and let your profits run. This is the essence of your trade exit rules.
Option Arbitrage in the Forex Market
What is arbitrage? Arbitrage is the simultaneous buying and selling of identical financial instruments taking advantage of price discrepancies between different brokers, exchanges, clearing firms, etc. and thus locking in a profit.
Creativity in Trading
"Is it important to be creative in your trading?"I'm not sure I can describe it in terms of importance. The creative process is somewhat of a mystery, even to scientists who study it.
Trading Tips No 1: Learn How to Trade The Moment of Truth
So you have learned how to trade the markets by mastering a few trading tools like Moving Averages, Channels, Stochastics, MACD, or RSI - that is a great accomplishment achieved by only a few. However, having the tools and rules to trade markets successfully, year in and year out, is only half of the challenge.
Money Management, Part 1
There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about.
An Evaluation of the Devaluation
A Minister of Finance is morally right to lie about a forthcoming devaluation and a woman has the right to lie about her age. This is the common wisdom.
The Basics of Forex
Foreign exchange market is also known as Forex or FX market. To date, it is the world's biggest "economic bazaar".
Money Management, Part 2
FEARING LOSSESThere is a huge difference between being risk averse and fearing losses. You must hate to lose.
Trading Timeframes
Long TermLong term traders will work from end of day data and look to hold trades for a few weeks up to many months. Usually trend trading.
What I Learnt Losing £60,000 My First Year as a Full-time Trader
During my first year as a local (independent trader) on the floor of LIFFE, I bought and sold 8804 FTSE futures contracts, about 40 contracts per day on average. The result was a loss of £61,620 or -£267 per trading day.
A Beginner's Guide to FOREX
FOREX is the abbreviation for the Foreign Exchange market. FOREX is basically an international exchange market where currencies from all over the world are bought and sold for profit.
Financial Crises, Global Capital Flows and the International Financial Architecture
The recent upheavals in the world financial markets were quelled by the immediate intervention of both international financial institutions such as the IMF and of domestic ones in the developed countries, such as the Federal Reserve in the USA. The danger seems to have passed, though recent tremors in South Korea, Brazil and Taiwan do not augur well.
Two Timeless Rules in FOREX Investing
RULE #1) ~ Cut your losers; let your winners ride.One important thing that every new trader must know before entering this highly profitable business is that life is not perfect, even in FOREX land, and you should always know one fact: YOU WILL HAVE LOSING TRADES.