Trading Plans: The Key To Success

For a business to really start earning and growing, it needs the right business plan to operate. The same thing goes if you are a trader, then you will need the best trading plans that you can come up with. Of course it depends on many factors and that is why no two trading plans will be exactly the same.

You might wonder why a company as big as IBM can almost always guarantee its success every single year? This is mainly because everything that they do or needed to do have been carefully laid out through their established plans and systems. It includes all the details that their employees have to follow to ensure the smooth flow of their services: from hiring people to selling their products and services.

When you are considering of getting into a business, would you immediately invest $5,000, $10,000 or even more in it if you do not have a clear vision or understanding of its viability? That you are not sure whether it will succeed or not? While there is no guarantee in life, particularly in the business field, you can do it if you take a closer look at the business plan. Sadly, when it comes to trading, there are many traders who do not even think of having their own plan of attack.

Therefore the key to success is clearly a thoroughly devised trading plan. And it is always a good idea to write it down yourself since you are the exact person who knows how you trade, including all of your preferences or pre-sets in trading. You can write your trading plan and then ask someone, preferably also a trader, to read it and see if he understands it.

Why is it important that you write your own trading plan? Simple, because it is your sole responsibility on what is stated in that plan. Aside from that, it is so that you will understand that in case you make mistakes in your trading, you will know what exactly to change in your plan.

A proper trading plan covers three main areas. First, it must have tested entry rules. This is a precise set of rules that a tradable instrument must pass through before you enter any trade. The rules must be simple and easy to follow.

Second, there must be tested exit rules. It is imperative that you know when to exit a position. These rules are as important as your entry rules. There is no point entering a trade if you don’t know the criteria which must be reached to exit. This will allow you to eliminate any emotion from your trading, and thus make you a much more consistent and reliable trader. When you become emotionally attached to your trades, you run the risk of holding onto them too long and thus not minimizing your loss. Precise exit rules will help you to avoid this situation.

And last but not the least, the need for a very strict money management is of high necessity especially if you know your assets for your trading are very limited. Again, this is to help you minimize your losses.

When it comes to formulating the best trading system, the factors presented above should be incorporated. Take time when creating your own trading plans as these are one of the best parts of any successful trading activity.

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