- Reviewed by James Stanley, Nov. 24, 2021
Trading Plan – Main Talking Points
- What is a trading plan?
- How to create a trading plan
- Trading plans: A Summary
What is a Trading Plan?
A trading plan is essentially a framework that guides traders through the entire trading process. It sets the conditions under which a trader enters trades, identifies markets, exits trades and manages risks along the way. The trading plan ensures accountability and keeps traders focused on their personal strategy.
How to Create a Trading Plan
1) Choose Your Analytical Approach
The analytical approach answers the question, “how do you identify trade set-ups?”. It could be a combination of price support and resistance, trend lines, chart patterns, Fibonacci levels, moving averages[1], Ichimoku Clouds[2], Elliott Wave Theory, sentiment[3] or the use of fundamentals etc.
This initial step of the trading plan helps traders to narrow their focus on a handful of scenarios that the trader is comfortable with. Thereafter, traders can look for opportunities to trade based on preferred trade set ups.
2) Select Your Favourite Trade Set Ups
The trade set up is at the core of the trading process. But first, think of the analytical approach as the event that triggers the trade set up. An example of this would be viewing a consolidation pattern (listed in the analytical approach as a chart pattern) which then gives rise to subsequent action from the trader, i.e. the trader will decide to trade the breakout[4] or wait for a pullback[5] or combine breakouts with pullbacks[6] only after the chart pattern has successfully played out.
Set ups are based on a number of factors that collectively lead to higher
