Having a trading plan is not going to make you a sudden millionaire. I mean, there are a dozen things that can possible be go wrong in the market, even with a plan, that a profit isn’t exactly guaranteed. But then, it would be a lot easier if you can make the plan work. That’s essentially the crux of it all: to make the plan work for you, you have to make it work. It’s not some magic genie after all, and it needs a bit of that elbow grease to get the gears turning.
Let’s be clear here, when I talk about trading plan, I don’t mean a half-assed list of cobbled together advice from a dozen investment books. A working trading plan is more than buy this, buy that, sell this, sell that. A trading plan should be your personality on a piece of paper with a whole lot of work attached to it. You should have put in research for your
The very first thing that you need to make a trading plan functional for you is to make it something that you are willing and able to work with. What does that mean in terms of how it is made? It means you have to know what the trading plan is about and what its goals are. For example, if you’ve set some unrealistic profit margins for yourself in your trading plan, you’ll have no choice but to not meet them. Not meeting those profit margins is very discouraging psychologically and you’ll probably start ignoring the plan because of that, which will even more cause you problems. A trading plan starts with realistic and easy-to-meet goals and a market that you can understand. If you were a dentist or a doctor, you’d know all about the pharmaceutical market, the same goes for an engineer for the construction companies and real-estate market. Knowing what you’re getting into will always make your trading plan work and you should focus on that.
Next, your trading plan should not make any unreasonable demands on you. This means that you shouldn’t write on your trading plan to sell at 1.50 when you really want to sell at 1.75. A person’s personality whether it be daring or conservative should both be reflected and slightly reined in by your trading plan. Always try to go for the middle ground when creating trading strategies for your plan. What this means is, you have to bridge that realm of personal instinct and logical trade practices. A good example of this would be if, as a conservative trader, you’d be comfortable at selling at 2.0, hoping to avoid any loss of profit. But your research tells you that the company’s shares can peak up at abou 3.0. A safe choice for your selling would be 2.5, that sweet spot right in the middle, with just a hint of risk but still within safety parameters. Trust me, it would be a whole lot better for your mental health, if you can work with your plan than constantly second-guessing it.
All of this, of course, is pretty much aimed at making you follow the trading plan. To be honest, following the plan is the only thing you need to make it work, but then would you follow a trading plan that you’re uncomfortable with? So, if you’ve done all of your homework, using your plan now should be a piece of cake.