Before we begin, I would like to state that to become a successful trader it is 100% necessary to have a goal and trading plan written down on paper. You need to know what you’re going to do in certain instances such as draw-down periods, winning streaks, you need to know what entry criteria you are going to have to take a trade, what type of trader you’re going to be such as trend trader, counter trend, day trader, swing, etc.
Another big advantage of having a trading plan is that it is a great way to stay on track, like your own little roadmap to success. Imagine you want to go on a cross country road trip, without signs, maps, or GPS, you will highly likely get lost along the way. Well, trading is the same. Without your roadmap and trading plan, you will highly likely get lost along the way.
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What is my trading goal for the rest of my career as a trader?
In this section, you must stipulate what your career goal as a trader is. It is easy to get caught up in thinking your goal should be for the next few months or year, but your goal should think of the next 10, 20, 30 or 40 years.
For instance, you could start off by writing; ‘The goal of my trading career is to return an ROI each year and compound my account to help my business (trading account) grow until I can sustain a liveable lifestyle from my own trading account. I will look to turn a consistent profit each quarter and review my trading on each month’s end. The main part you need to high like is where do you want to see yourself in the next 10 years as a trader, without rushing the process.
How much capital are you starting with? Don’t feel discouraged if you’re still on demo or only have a small capital such as $500 or so, you should still stipulate how much capital you are dedicating to starting your trading career. It is okay to start with low capital as you’ll eventually grow it over time. If you’re still on demo then write down the starting capital you have on demo.
Strengths: What are your strengths as a person? Are you patient, disciplined, do you have lots of time on your hands? Are you strong minded? Outline your strengths.
Weakness: What are your weaknesses? Are you impatient? Do you get stressed easy? Are you in bad part of your life you are trying to overcome? Outline your weaknesses.
Opportunities: What opportunities will arise from this career? Will it be a gateway to freedom? Extra income on top of your job? Will it be a full-time income eventually? Outline your opportunities
Threats: What threats do you face as a trader? Are family and friends against you trying to trade? Do you run the risk of blowing your trading account? Are you a big risk taker and hate staying within guidelines? Outline your threats
SWOT analysis is incredibly important as it helps you understand yourself as a person and a trader. It is easy to say “I am a patient and discipline person” however, when outlined on paper, are you really? The idea of SWOT analysis is to analyze yourself before you decide to become a trader.
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What style of trader will I be:
“I will be a trend trader that follows the dominant trend on the daily chart and will only look for trading opportunities when price comes back to an area of support, resistance, shows oversold / overbought on the stochastic and is above or below the 200 EMA. I will only look to buy the market is price is above the daily 200 EMA and I will only look for a sell when price is below the 200 EMA.“
“If price is in a down/uptrend and pulls back to an area of value such as the 20 ema, 50 ema, 200 ema, is at a Fibonacci level of 38.2, 50, 61.8 shows signs of oversold /bought, rejects of the area of value and engulfs the previous day.” This is my personal trade plan.
This is an example of how you should write out your EXACT trading criteria, what type of trader you want to be etc. You can write “I want to be a counter trend trader that looks for turning points in the market on the 1hr, 4hr and daily timeframes. I will wait for price to reach an area of value such as support, resistance, Fibonacci, and I will look for patterns such as double tops / bottoms, head and shoulders, inverse head and shoulders” etc... Write your own trade criteria! It is incredibly important to write down your EXACT trading plan and STICK to it. These will be the ONLY reason you will enter the market. You should never enter the market if your trading criteria does not validate itself on the charts.
Many traders think risk management is just risking 1% per trade however there is a lot more that goes into it. My risk on each single trade will be 1% with a minimum 2% reward. I will look for minimum 1:2 risk/reward on each trade. I will have a maximum of 5% exposure in the market at any given time, this means I can only have 5 trades open at a time, if I manage to move one stop loss to break even and now my exposure is 5%, I will be allowed to open a new trade.
Drawdowns happen, but how do you manage a drawdown? It is important to understand that no matter who you are, what type of trader you are, how great of a trader you are, you WILL suffer drawdown periods.
During a drawdown I will look to limit my exposure in the market, for instance, if I have lost 5 trades in a row, I will now reduce my risk from 1% to 0.50% per trade until I make back 2% of my drawdown. I will continue to stick to my trading plan, and I will NOT change my entry rules or trading rules. If I have suffered a drawdown of 5 losses in a row, I will take the rest of the week off from trading and look to come back the following week with a clear head. The very worst thing you can do after suffering drawdowns is revenge trade. Take time off, clear your head, review your trading plan, and come back with a strong head.
This is an extremely important part of trading. Any business keeps a record of its sales, inventory, profit, loss. You MUST journal your trades. Your journal should include Entry dates, pips gain/loss, profit gain/loss, why you entered a trade, why you exited a trade, date closed etc... Here is a table example of how it could look.
This is just an example of how your trading journal could look. I have also shared my own personal journal that I use for you to use as well. Each month you should go back and review your journal and see if you made any trading mistakes or could have done anything better. Feel free to add anything you wish to this trading plan or reach out to myself for guidance in helping to build your trading plan.