4 keys to following your trade plan

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4 keys to following your trade plan

So many traders who’ve yet to find their trading consistency, struggle to follow a trade plan that has a trading edge.

In fact it could well be that they don’t even have a trading plan.

But let me tell now – if you can find a way that will allow you to consistently follow your trade plan and stick with it, your overall results and trading success become far more attainable.

 

Why Bother With A Trade Plan?

If that is a question you have asked, you really don’t understand how important the trade plan is.

There are at least three really persuasive reasons as to why you should be doing this:

  1. Trading emotions and trying to figure out the market when you are actually trading is a lot more difficult than defining what constitutes a trade and then executing when all the variables line up.
  2. A trade plan will make it much easier to define your level of risk for a particular trade
  3. You will always have a baseline in which to judge your trading performance and improve your trading results.  When you record and learn about your trades, you can add or subtract different variables and measure the impact on the system you are trading.  Figuring all that on the fly will prove to be an impossible task

 

So You Know You Need One

In fairness, a lot of traders know that following a great trade plan is really important but somehow they can’t seem to get it together.

It’s not that they don’t have enough trading experience or knowledge, it’s more that something just hasn’t “clicked” – and it’s this “click” that will see you start to make “the trading turn”. So what’s the key to following your trade plan?

Well, there are a few crucial parts to the machine.

  • It must be explicit covering vital details

There’s only a certain capacity for information and rules that any one person can realistically follow when markets are moving fast. But any trade plan needs to be thorough enough to ensure that you’ve at least covered the basics.

You should know your risk per trade for example. You should also know what you trade; what size you trade; when you trade; when you don’t trade; what a setup is; how you manage your trades etc. You should know all the specific detail about your trading method.

If you know what you should be doing, it’s much easier to see the things that don’t fall into this category.

  • You must fully believe in it

The next issue is when a trader has a plan but doesn’t fully believe in it. Things usually start well, but as the trader becomes more emotionally embroiled, the distrust in their plan sees them begin to violate their own rules.

There’s this gaping chasm between understanding concepts in principle and believing them to your very core – living by them. So you need to back-test your plan (even manually, tick by tick) and you need to build trust in it by evaluating it over a number of trades.  Only then will you have the trust in the trade plan to stick to it even when you are faced with a losing streak.

  • You must be fully focused

So much is always going on in our lives and the challenge of remaining focused particularly for a retail trader who trades from home, is a big one. Even if we discount the family interrupting, the various other things that we need to do at home, the vast amount of information constantly streaming to us through the internet and whatever else, there is a huge amount of potential distraction from the markets and in our charts.

By making sure that you know exactly what you are looking for, it’s far easier to remain focused from one day to the next.  Ensure that you have a home office that is removed from the daily living space and that family knows that when it’s time for you to work that the time is respected.

  • You can’t place too much importance on single trades

You can’t hide from emotions and the psychology of trading. Even if right now you believe that this is not an especially import aspect to your trading, believe me when I say that one day you will.

There are many issues at play here that without a doubt can impact on your ability to follow your trade plan. But specifically, much of these have their roots in placing too much importance on a single trade. Not wanting to take a loss, cutting your winners short or the fear of missing out all stem from this mindset.

But the fact is, some trades will be winners and some will be losers, so you have to let the trade fully play out.  Understand and accept that all trading plans will have winning streaks, losing streaks and that they will come in a random fashion.

I know that there’s always the eagerness to engage the market and that actual trading is viewed by some as the best way to learn, but truly the best way is to theorize, observe, interact, review – take systematic approach. Call it the “scientific method” for trading. The only way to do this is to create and follow a plan.


Since many traders like to use indicators (usually the wrong way) for their trading method, Netpicks has put together a free and vital “Indicator Blueprint” to put you on the right track when using an indicator for your trading decision.  Get access to the PDF and videos by clicking here.

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Coach James

James began his trading career nearly a decade ago, learning his craft in fixed income derivatives. These days, he predominantly day trades index futures using auction context as the vital ingredient to his approach. James is a firm believer in the importance of trader psychology and how it can make such a monumental difference to how well a trader performs.

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