NOVICE TRADER
Building A Complete Trading Plan
A Blueprint For Your Trading
by Vadym Graifer
The active management of a trading account should be treated
as a business and requires a complete trading plan. Here's how to build
one.
A trading plan is often described as a document
with setups that a trader intends to trade and details of entry and exit.
In best-case scenarios, rules of money management are added, instructing
a trader on how to act during a trade. While such a plan is better than
a haphazard approach, it is not nearly enough for a beginning trader who
needs to build an entire trading method from scratch.
THE COMPLETE PLAN
The most common shortcomings of an incomplete trading plan are:
-
Lack of foundation in terms of understanding the market inefficiencies
that a trader intends to exploit
-
Lack of logical connections between different aspects of trading, mismatch
between method, time frame, and tools, and
-
Lack of a well thought-out idea on how to progress through the learning
curve with minimal risk.
Not many would venture into a new business without a thoroughly documented
business plan. The active management of your investment or trading account
is a business and requires a complete trading plan, with each of its elements
aligned and interconnected.
A trading plan outlines your entire approach to the stock market (or
any other market for that matter, be it futures or currencies). It matches
your actions and objectives, risk tolerance, individual circumstances,
and personality traits. It defines your tools, states criteria for entry
and exits, establishes your general approach, and outlines procedures to
realize your goals. Finally, it outlines your course of action in a disciplined
manner intended to preserve your hard-earned money from excessive risk.
To structure your trading plan properly, start with generalities, moving
to details, aligning all elements of your plan. Skipping these first steps
is like building the walls without a proper foundation -- in other words,
a house of cards.
...Continued in the January 2006 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the January 2006
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2005, Technical Analysis, Inc.
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