How to make a good trading plan?

Example of trading plan

You can use the questions and answers below to help you formulate your trading plan. Remember that your trading plan is a personal road map. You must therefore take your own circumstances into account when creating it.

What are my motives?

Example: “I want to challenge myself and learn as much as possible about the financial markets to build a better future for myself. »

What is my personal investment?

Allow enough time to check your orders, but decide on the time of day that will work best for you. Some traders prefer to monitor their orders throughout the day, while others set aside some time in the morning, afternoon and evening. It is always recommended to manage your risk with stops. This is especially true if you plan to keep positions open when you don’t want to monitor them.

What are my short, medium and long term goals?

Example: “I want to increase the value of my portfolio by 15% over the next 12 months. To achieve this goal, I plan to seize opportunities three or four times a month, but only when they match my strategy. I will also be consistent in increasing my risk every three months if I exceed my target by 15% and continue to learn by reading financial news at least two hours a week. »

What is my risk/reward ratio?

To calculate the risk/reward ratio you want, compare the amount you risk on each position to its potential gain. If your maximum potential loss on a trade is $200 and the maximum potential gain is $600, the risk/reward ratio is 1:3.

It is recommended that you only risk a small percentage of your total trading capital on each trade, with 2% generally being reasonable and 5% considered very risky.

How much capital will I allocate to this activity?

Example: “I’m putting aside $1,000 a month for the first six months.”

In which markets do I want to invest?

Example: “I want to invest in the currency and commodity markets because these are the markets I understand best. »

How will I analyze my orders and my performance?

Example: “I start a trading journal, make notes for each order, review the notes every morning and summarize the month. I will note successes and failures, why I made certain decisions and my feelings about day trading. I will use my notes to review my strategy every three months. »

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