How to Build a Trading Plan: Part Four

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How to Build a Trading Plan: Part Four 1

Goal setting

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Having something to strive for should be an essential part of your trading plan. It is how we develop and ultimately progress. Goal setting is a component that should not only focus on financial objectives; it should also look at developmental goals as well. Some examples of developmental goals might be:

  • Sticking to your setup’s rules and not deviating.
  • Respecting risk and money management principles.
  • Adhering to your set trading times.

By focusing on becoming a skilled and disciplined trader, the financial rewards will likely follow.

Trading goals are, we believe, best structured throughout the year, setting annual, quarterly, monthly and weekly objectives. An example of an annual goal could be to improve your trading knowledge by reading a number of books on psychology or a particular area that you struggled with last year. Additionally, you may want to note your expected yearly gain here too.

We tend to not set weekly, monthly or even quarterly financial goals. We’ve always found setting realistic annual percentage goals less stressful as time is effectively on your side here. Weekly, monthly and quarterly goals are, in our opinion, best suited to developmental objectives.

What can a trading plan do for you?

Throughout this article, we have attempted to demonstrate what we feel is required to create a well-defined trading plan.

As we have already mentioned, each section has a crucial part to play. Just to reiterate what we mean here, one may have a fantastic setup, but without correct risk and money management principles laid out you’ll likely still lose money. Another example could be not sticking to your allotted times of trade. This can lead to overtrading and therefore potentially force one to neglect his/her trading strategy’s rules, thus placing capital at unnecessary risk.

To wrap up this series, we’ve listed some of the reasons why a trading plan IS beneficial and why it is required to successfully operate in the market:

  • Without a trading plan, the act of trading becomes frustrating, stressful and a pointless exercise. Following a plan will help employ discipline and structure.
  • Take away much of the decision-making process – the trading setup is either present or it’s not. When live funds are on the line (as briefly highlighted in part one), a trading plan helps a trader maintain a certain amount of equanimity and keeps one from making illogical and often impetuous mistakes in the market.
  • Gives you the ability to monitor your progress, identify mistakes and alter the trading plan accordingly. A trading journal will help here
  • Allow financial and developmental goals to be clearly defined.
  • Identify the markets you wish to engage in.
  • Have a clear understanding of your risk and money management principles.
  • Organise times of trade.

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