Thursday, September 18, 2008

Why you need a trading plan?

A trading plan should have complete sets of rules that cover every aspect of any trader's trading.

• What instrument (stock, forex, options, future, CFD etc) you want to trade and why? I trade stock and forex not because I like stock or forex market I have definite reasons to trade those, you need to know why you are trading individual stock not index?

• Which market (NYSE, NASDAQ etc) you want to trade?

• What is best time for you to trade why? (Suppose for forex London open is the best time to trade)

• How you will select a stock or a currency pair that will give you the best result.(I have 12 specific rules to select a stock that helps me a lot to avoid over trading)

• The maximum percentage you will risk on each trade. This most important for new trader to learn risk management. I follow three golden rules to manage my risk.

• How many lots/share you will trade per trade (position size).I always follow two different rules to know my position size.

• Which time frames you will look at. Time frame is very important aspect to any trading. I follow 5 and 15 minutes chart for equity .Any good set up will appear in any time frame but the point is exit will be different in different time frame.

• A trading plan will give you clear-cut entry strategy, where should you enter and why .My trading plan has eight specific entry strategy.

I think exit is the key to a successful trading plan. A exit strategy will show you where to exit and why. I use three different exit strategies.

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