Trading Plan
Table of Contents
Trading Plan
What is a Trading Plan?
Your Trading Plan is the principal document that guides all aspects of your trading business. If someone else wished to know how you run your trading business, this is the first place they should look. All other documents, plans or procedures are secondary to, and should be referenced by, the Trading Plan.
Creating Your Trading Plan
In many respects, this whole YSTC Trading with Price Action Volume eight-volume series comprises a part of your Trading Plan.
However this is not enough to allow you to start trading the markets.
Everyone’s interpretation of the strategy will be unique. And as you work through the trader development stages outlined in article 94, you will very likely adapt and modify the strategy to suit your own psychology and trading needs.
Plus, everyone is different with respect to their personal and financial situation, their risk tolerance, and many other personal factors which need to be considered and documented.
You must therefore create your OWN trading plan.
The following articles will provide a general template and explanatory notes. Read through the article now; complete the remainder of Module 6 : YOUR TRADING BUSINESS, Module 7 : TRADER DEVELOPMENT, Module 8 : CONCLUSION; and then come back to this section to draft your own trading plan using your word processor. The greater the effort you put into creation of your plan, the greater the potential rewards in your trading business.
I would love to be able to provide a completed plan. Unfortunately that wouldn’t work. Your plan must be your own. So feel free to vary the template however you see fit. Remove sections which do not apply to your circumstances. And add additional information as required.
Living Document vs Static Document
Your trading plan should be viewed as a living document. It will grow and evolve, as your level of development grows and evolves. As such, I recommend you implement a regular review of the document to ensure it remains relevant. Prior to becoming consistently profitable, I recommend this review be conducted monthly. Beyond that stage, extend the time out to quarterly and eventually biannual or annual reviews.
Importantly, because your trading plan is a living document, do not stress if you have trouble putting one together at this point in time. Just do the best you can, and it will improve as you develop as a trader, provided you are disciplined with your reviews.
Detailed vs Simple
There is often much discussion and debate about whether a trading plan should be detailed or quite simple. There are pros and cons for both.
I’ve seen incredibly detailed plans comprising 50+ pages; and others comprising only a paragraph or two.
Whatever works for you is best.
However, I will suggest that during your development phase a single page plan IS insufficient. When you have a dozen years experience behind you then you may not need every aspect of your business documented. Most detail will then be internalized and your plan, while only one page on paper, is actually quite detailed when considering all your trading skills, knowledge, attitude and habits. Until you reach this stage, you need clear guidance. And the only way to do that is to make as detailed a plan as possible.
The problem most people find though is that they create a detailed plan but never refer to it – it’s too complex and unwieldy to refer to in the heat of the daily trading battle.
As such I recommend the following:
- A detailed trading plan – produced, not with the intent of being referred to day to day, but because of the clarity that the process of producing this document will provide to you with regards the operation of your trading business.
- A separation of the day to day procedures, into it’s own document – The Procedures Manual – which we’ll create in article 81
The Trading Plan Template
Next article provides the template which I currently use and article after that contains explanatory notes.