Writing a Trading Plan Like a Pro

April 26, 2024 Off By The Balanced Trader

A Trading Plan is a comprehensive document that outlines a trader’s objectives, strategies, and expectations. It serves as a roadmap for traders, guiding their decisions and actions in the market.

Elite traders are aware of their edge in the market before they even place a trade. This edge is well-defined and repeatable, forming the basis of their trading strategies. These traders understand that there is a random distribution of wins and losses for any given set of variables that define an edge, leading to excellent repetitive execution.

The primary goal of a trade plan is to clearly define your trading processes and strategies, with the ultimate aim of creating a repeatable process. Define the type of trading business you want to set up, is it Short -term , Scalping, Structured trend following, and you should know your time frames and and periodicity. What regimes does your business work best in and when should you not conduct trade? All of these details will avoid you making things up on the fly once the market has opened.

When starting out, the focus should be on developing your trading process. This includes cultivating the mindset of a winning trader and learning to think in probabilities rather than in terms of profit and loss. Too many traders focus on the outcome and not the process to achieving their goals.

A trade plan guides your trading business, defining big-picture items such as rules, processes, routines, analytics, theories, and goals. While many traders include their trading strategies in their trade plan, some prefer to define them in a separate Playbook for various reasons. Additionally a focus on statistics will help in strategy development.

For instance, having traded a lot of different strategies over two decades, I find it beneficial to have all my strategies broken down individually. This becomes extremely valuable as you delve deeper into strategy development.. Also allows you to run stats on each strategy and understand what works best under different market conditions.

A Trade Plan that focuses solely on the macro-level picture can aid in your review process whilst maintaining enough measurable details so that your progress can be tracked and adjusted.

When I began my career, I was surrounded by elite traders every day. My mentor and the owners of the firm kept me in line and made sure I was following their processes. If I was trading poorly, they held me accountable. As I developed and ran trading desks of my own I then did the same to those on my team and looking to develop.

An accountability partner (AP) is someone you’re close to who is committed to helping you achieve your goals. A good accountability partner will call you out and question you when you’re not following your rules. Their criticism, due to your respect for them, should serve as a motivator to improve. Never underestimate the power of social/ peer pressure as a motivation for change.

Many traders forget the importance of journaling but without a solid journal there can be no long term learning. A journal is a heuristic diary of our progress and daily learning. It should be updated and reviewed daily.

Good trading should be effortless, with the hard work coming in the preparation phase. Your Trade Plan and Playbook are part of your preparation. The objectivity and clarity that a solid plan provides are essential in a market that requires split-second decision making to capitalize on opportunities.

It’s important to incorporate stress-relieving activities, such as meditating or working out, into your aftermarket routine. Trading can be emotionally challenging at times, and keeping mentally and physically fit is imperative in this business.

On a weekly basis, you should perform a thorough analysis of your trading business. Examine your processes and trading analytics, looking for areas where you can improve. Also be sure to highlight aspects of your game that you do well its not only about errors and weaknesses. Remember, all traders make mistakes. The question is whether or not you will analyse those mistakes to learn from them. One last thing try to be kind and not overly harsh on yourself, trading is a difficult endeavour and in order to persevere you can’t always beat yourself up.