No matter what we do in life, plans are important. Let’s face it, you could build a house without a plan, but the process would go much more efficiently if you knew what you were building and how to build it before you start.
The truth is that the same goes for trading. At the end of the day, the most successful traders follow clear, precise plans when making their moves in the market.
But how do you go about creating a great trading plan?
Here are 5 important steps to take…
Step #1: Decide Your Trading Vehicle
The first thing that you’ll need to do is decide which trading vehicle you’d like to use. There are several different trading vehicles out there, each with their own risk and reward profile.
Generally, higher risk trading vehicles like binary options and forex will come with the highest rewards. On the other hand, lower reward trading vehicles like ETFs will come with lower rewards.
With that said, it’s important to use a trading vehicle that properly balances risk and reward to meet both your goals and your comfort level with risk.
Step #2: Pick A List Of Strong Assets
No matter what trading vehicle you choose to use, there are going to be several assets like stocks, currencies, and commodities that you will have the ability to trade.
At the end of the day, there are assets that work great with some trading vehicles and horribly with others. So, your next step is to search for strong assets associated with the trading vehicle you’ve chosen.
The best way to find these is to ask the World Wide Web. Simply do a search on your favorite search engine asking what the best assets are.
For example, if you’ve chosen forex, search the following term “What are the best currencies for forex traders to trader?” Continue on with your research and you’ll have a list of great assets to start with.
Step #3: Create A List Of Information Sources Surrounding Your Assets
Once you’ve got your list of assets, you’re going to want to get to know them intimately. One of the most important things you’ll need to know is which popular news outlets cover the assets on your list.
After all, the news moves the market. Following the outlets that cover your assets will give you insight into what to expect next.
So, start searching for your assets using Google News or Bing News. This will give you an idea of what outlets cover your topic the most. Follow these closely!
Step #4: Include A Strong Risk Management Strategy
At the end of the day, no matter what trading vehicle or assets you chose, there is going to be risk. So, it’s incredibly important to learn about risk management and loss exposure management.
Like assets that are proven to work well with your trading vehicle, there will be risk management and loss exposure management strategies that work best with your trading vehicle.
Do a bit of research and choose strategies that fit your needs.
Step #5: Write The Most Important Indicators Into Your Plan
Finally, no matter what you’re trading, there are going to be important indicators to watch for. A basic example of one of these is support.
When an asset falls to a bottom, then starts heading upward, it has reached support and often signals a great time to buy.
Do a bit of research to learn what indicators work best for your trading vehicle and add those into your trading plan.
Final Thoughts
At the end of the day, creating a trading plan really isn’t all that hard. It doesn’t take much time either.
However, by taking about an hour or two out of your day to create your plan, your earnings in the market will likely grow exponentially.
