Trade Like Pro: Have Trading Plan. Know Why It Is Important!

Two trader friends, Kunal and Deepak; Kunal was a disciplined trader. 

He always had a trading plan and maintained a trading journal.

Before initiating any trades, he always followed his written set of rules.

1 of his strict rules was that he would only trade when the market would be favorable and would only take 2 trades a day – regardless of profit or loss.

He adhered to his risk-to-reward ratio and position sizing plan with discipline even when he was tempted.

After some early losses, Kunal improved his process and made steady profits year after year.

Deepak was directionless and just traded on news and tips. 

He was determined to learn, but never followed any set of rules and just traded for his thrill and dopamine rush.

When trades went in his favor, he felt like a genius. But guess what?

Over time his losses kept increasing and he kept on repeating the same mistakes. 

He refused to adopt and follow any trading rules.

After years of ups and downs, he was badly in debt from trading.

 Finally, Deepak had to find a new job and settle for it to meet his survival needs.

Bottom Line: Be smart and disciplined like Kunal. Always have a ‘Trading Plan’ and maintain a trading journal before even starting trading.

A trading plan is like a map providing you with accurate directions to your destination.

Without a map or a guide, you are more likely to lose your way. Follow it with discipline.

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What is a Trading Plan?

A trading plan is a set of rules and guidelines a trader follows before trading.

The plan includes strict rules and guidelines like:

1. What market will I trade? (Equity, Commodity, Futures & Options, etc.)
2. How many trades/day will I take?
3. What would be my strategy to trade? (I’ll only trade when the stock would come on the radar of my strategy).
4. When will I enter or exit the trade?
5. What would be my Position Size? (How many shares or lots will I buy)
6. What would be my Risk Per Day and Risk Per Trade?
7. What would be my stop loss?
8. What would be my minimum risk-reward ratio?

So, your trading plan would be the complete daily roadmap before trading. Following your trading plan strictly you’ll jot down the outcomes of your trades in your trading journal.

Having a trading plan and maintaining a trading journal is the stepping step towards becoming a professional and profitable trader.

Why It’s Important? Why Do You Need It?

1. Makes You Disciplined: The trader sticks to their rules instead of making emotional decisions.
2. No Gamble. Removes Guesswork: All decisions are based on analysis, logic, and plan. You’re not ‘beating around the bush’.
3. Allows Backtesting: A trading plan allows the trader to backtest their strategies and set of rules before even executing them.
4. Improves Your Trading Psychology: It helps you to develop emotional control, stabilize your mind, and even make sure that you don’t overtrade or revenge trade.

Set a time to review your plan each week or month. Refine rules that are not working. 

Work like a professional trader to become one.

Strictly follow your trading plan and maintain a trading journal.