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A written trading plan, usually comprising of several guiding action statements, serves the following two invaluable purposes:
Let’s move past the fact that many traders choose not to have a plan at all, an approach that goes against what is one of the key components of giving yourself the chance to become a successful trader, to those who have a plan in place already. This article is targeted a those who have made the logical choice to have some sort of written plan in place.
Great though having a plan is, many traders still have issues with the two purposes outlined above. They still fail to some degree to develop the consistency described and are not really able to measure effectively.
A common problem, if we look closely at some of the plan statements used, is that such statement may not be specific enough, have some ambiguity, that means that those purposes may be difficult to achieve.
Let’s provide and work through an example for clarity.
Consider the following statement…
“I will tighten my stop/trailing stop prior to significant, imminent economic data releases”
Firstly, on the positive side again, this does demonstrate an awareness of potential risk and a desire to have something within your plan to manage this risk.
However, in terms of being a measurable statement that you can make a judgement as to how well this approach is serving you, there are the following issues:
So, to take the previous example consider the following as an alternative:
“Prior to imminent economic data releases, I will tighten of a trail stop loss for any open trades, 15 minutes prior to the release and to within 10 Pips of the current price. This will be actioned for the following data points:
So, with THIS amended plan statement the following elements could be measured (if journaled appropriately of course):
What would the difference be in your trading outcomes if:
With this level of measurement, possible with the revised statement, one would now be able to make any changes, backed up with evidence, to your trading plan.
Alternatively, of course, you could make the choice to do nothing, retain statements such as the original, and not have the ability to create the richness of evidence to make considered amendments to your plan.
Logically ask yourself the question, “which choice is more likely to serve my trading going forward?”
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.