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A written trading plan, usually comprising of several guiding action statements, serves the following two invaluable purposes:
Let’s move past the fact that many traders choose not to have a plan at all, an approach that goes against what is one of the key components of giving yourself the chance to become a successful trader, to those who have a plan in place already. This article is targeted a those who have made the logical choice to have some sort of written plan in place.
Great though having a plan is, many traders still have issues with the two purposes outlined above. They still fail to some degree to develop the consistency described and are not really able to measure effectively.
A common problem, if we look closely at some of the plan statements used, is that such statement may not be specific enough, have some ambiguity, that means that those purposes may be difficult to achieve.
Let’s provide and work through an example for clarity (we have used something generic that applies to all trading vehicles).
Consider the following statement…
“I will tighten my stop/trailing stop prior to significant, imminent economic data releases”
Firstly, on the positive side again, this does demonstrate an awareness of potential risk and a desire to have something within your plan to manage this risk.
However, in terms of being a measurable statement that you can make a judgement as to how well this approach is serving you, there are the following issues:
So, to take the previous example consider the following as an alternative:
“Prior to imminent economic data releases, I will tighten of a trail stop loss for any open trades, 15 minutes prior to the release and to within 10 Pips of the current price (or course this can be adjusted to points or cents dependent on what you are trading). This will be actioned for the following data points:
So, with THIS amended plan statement the following elements could be measured (if journaled appropriately of course):
What would the difference be in your trading outcomes if:
With this level of measurement, possible with the revised statement, one would now be able to make any changes, backed up with evidence, to your trading plan.
Alternatively, of course, you could make the choice to do nothing, retain statements such as the original, and not have the ability to create the richness of evidence to make considered amendments to your plan.
Logically ask yourself the question, “which choice is more likely to serve my trading going forward?”
The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs. These documents are available here.
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