iqoption

Tagged: 

Creating a Trading Plan
Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#2028

Alex

September 14, 2015 at 5:49 pm

Most traders get lured into Binary Options trading due to the simplicity surrounding it. All you have to do is choose whether the current market price will be higher or lower after a predetermined amount of time. Due to binary options’ simplicity, traders think that they do not need a trading plan. Trading is a business, so you will need to treat it as such to succeed. Every successful business or entrepreneur has a business plan and so should your trading. There is an old saying: “Fail to plan and you plan to fail.” Creating a solid Forex trading plan is one of the most important steps a trader could take in his/her career. If you already have a written trading plan, congratulations! You are in the minority. While it is still no guarantee that you will make money, you have eliminated one of the major problems.

The Benefits of Creating a Trading Plan

Having a plan is crucial when you want to survive in the trading environment. It is your blueprint to become a consistently profitable trader. The plan gives you instructions on how you should handle each trading situation that you will face. The primary benefit of a trading plan is that you can monitor your results and see what works and what doesn’t. Random trades you take won’t provide you with any valuable feedback, because your winners and losers will be as random as the impulses were to take the trade. Following your plan will allow you to evaluate which strategies work and make the necessary adjustments to improve.
Most people have a misconception that a trading plan has to be long and complicated. Other traders think that they can just spend a few minutes on creating a plan to simply check it off their list. The truth is that you need to invest a good amount of time to create a plan that will be worthwhile. Your trading plan will change as time goes on because of market conditions, your skill as a trader and your portfolio size. When you are creating your trading plan, you should take into account your personal trading style and goals. You should refrain from using someone else’s plan because it does not reflect your trading characteristics.

Before you begin to create your trading plan, you should ask yourself the following questions:

  • What trading style will best suit your personality? Do you prefer short-term or are you more of a long term trader?
  • Will you only be trading binary options or are you going to diversify your trading and trade Spot Forex, futures or stocks?
  • What do you want to accomplish through trading? I want to make money, is not clear enough. State how much you actually want to make. Are you trading for a hobby or a living?

Building The Perfect Trading Plan

  1. Mentally Prepared
    How do you feel today? Are you emotionally and psychologically ready for the challenge ahead? If you don’t have your head in the game 100%, it is better rather to take the day off from trading. Anger, sadness, sick, hung over, will all result in serious problems for your trading. Most successful traders have some sort of routine they follow to get their head in the right place. Create one that works for you. Even if it just a good coffee and shower before you start.
  2. Risk Level
    What is your risk tolerance? What percentage risk are you comfortable with? Most traders use anything from 1% to 5% of their account for the day. This means that if you lose the predetermined amount for the day, you stay out of the market. You are only allowed to carry on trading the following day.
  3. Set Goals For Yourself
    How much do you want to make for the day? If you choose to make 5% for the day, you should stop as soon as you reach that point.
  4. Trade Limit
    How many trades will you allow yourself for the day? How many trades does it take before you reach your daily profit or loss? If you choose 10, you stay with ten trades, and you stop trading for the day no matter what.
  5. Economic News Releases
    Are you allowed to trade during the news? Most traders prefer to stop trading 30 minutes before a high impact news event and then start trading 15 minutes after the release. You should specify the exact times and stick to them.
  6. Daily Preparation
    What do you need to do before you start trading for the day? Some important stuff to do is: reboot your router and computer(s) to clear RAM (Random Access Memory), mark of major support and resistance levels, set alerts for possible trading zones and make sure that your trading area has no distractions. Distractions in any business will only cause you to make mistakes.
  7. Entry Rules
    What are your entry rules for your trading strategy? What needs to happen in order for you to take the trade? Your strategy should be complicated enough to be successful, but simple enough to allow for quick trading decisions. Make sure you don’t have too many conditions that has to be met and that they are specific. Otherwise, it will be very difficult to make trades based on your trading plan.
  8. Expiry Time
    Choose an expiry time and stick with it. Will it be 60 seconds, 5 minutes, 1 hour, daily, etc.? Same goes for the chart timeframe – stick to the same timeframe to take your trades from.
  9. Assets
    What assets should you focus on? How many is allowed at any given time? The EUR/USD is all you need to make some serious cash but if you are looking to take numerous trades throughout the day; you should definitely add some pairs.
  10. Trading Schedule
    What time of the day should you trade? How many hours per day will you allow yourself to reach your goal?
  11. Keep Records
    Write down details why you took the trade. Did the trade win or lose? Why did the trade succeed or fail? This step is crucial because it can help you to avoid making the same mistake in the future.
  12. End of Day Routine
    Add up the daily profits and losses. Go over the trades you took for the day. Are you happy with what you achieved? Could you have done something to improve the performance? Did you stick to your trading plan? Write down your observations in your Trading Journal.

Conclusion

Creating a master trading plan will take time but it will be worth it in the end. The plan should be very detailed and should at least incorporate all of the above points. You will have to adjust your trading plan every now and then, because you will come across things you didn’t consider beforehand. Once you are happy and your plan is profitable you should avoid tinkering with it. The whole idea of the trading plan is to make your trading systematic, so you see what works and what doesn’t. If you keep on making changes to the plan, it won’t have time to show you if it is really working or not. A Trading plan is only as good as the trader’s discipline therefore it is vital that you stick to your plan. What are you waiting for? Start your trading plan today and become one step closer to being that successful trader you have always dreamed of!

Deandre Hershman

LEVEL 1 : NEWBIE

REVIEWS 6 | REPLIES 2

#2041

tradeisme

September 14, 2015 at 7:05 pm

Hey man great stuff, I actually have a very detailed trading plan but I struggle to stick with it. I heard that some people use trading journals to force them to stick with their trading plans. I want to ask you what your opinion is regarding trading journals. Is it worth the time and effort? Do you have one?

 

Alex

LEVEL 10 : SENIOR

REVIEWS 9 | REPLIES 84

#2044

Alex

September 14, 2015 at 8:23 pm

Deandre, funny that you would ask me about trading journals. I am actually busy with an article about trading journals as we speak. In my opinion, you NEED to have one to succeed in the trading game. There’s no way around it. Having a trading journal is like having a personal trading mentor. If you don’t have one yet you should definitely start it as soon as possible.

For the other people that are reading this – you first need to create a solid trading plan before you can move on to creating a trading journal. Build the foundation from the ground up and not from the roof on down.

Edison Pickle

LEVEL 1 : NEWBIE

REVIEWS 7 | REPLIES 2

#2046

eddie

September 14, 2015 at 9:03 pm

Hi Alex

I have recently created a trading plan, but it looks like it still has a lot of missing pieces if I compare it with this article. Also, I’m looking forward to reading your trading journal article! Always quality stuff from you 😉

E. Pickle

Trent

LEVEL 2 : NOVICE

REVIEWS 6 | REPLIES 9

#2057

Trent

September 15, 2015 at 7:02 am

This is good!

Dustin Blane

LEVEL 1 : NEWBIE

REVIEWS 6 | REPLIES 2

#2048

pipschool

September 15, 2015 at 10:17 am

Great informative article, Alex!

I have always heard people talking about trading plans, but I never really knew what it consisted of. This is very detailed and it will definitely help me to create my own trading plan! I’m still a newbie as they call me, so I will probably struggle to get it right the first time.

Thank you

one_jon

LEVEL 1 : NEWBIE

REVIEWS 1 | REPLIES 3

#3505

one_jon

August 29, 2017 at 9:03 pm

That is very important, discipline matters very much. Following to the trading plan makes you sure that everything is under control and you are more confident while trading. Hence your results became much better.

You must be logged in to reply to this topic.