How Does One Develop Trading Plan?
February 29, 2008
This is the second part of a series on creating a trading plan for yourself. The material is primarily excerpted from my book, The Essentials of Trading.
How Does One Develop Trading Plan?
The process of building a solid Trading Plan can be fairly straightforward, or it can be complex and involved. That is entirely based on the trader and what he or she is looking to accomplish. Much of that gets determined in the upcoming section on assessment. In essence, however, the remainder of this book takes one through the process of developing the Trading Plan, and covers the related elements involved in doing so.
Before we move on along, however, there is one piece of business—the Journal.
Journals
As previously noted, there are two elements for sustained successful trading. One is having and executing a good Plan. The other is having a good trading system as part of that plan. Every trader should maintain journals for focusing on both those elements.
The first journal covers system development planning and research. In it you keep track of everything that goes in to your work. This kind of journal can become an invaluable resource as it provides a record of all your testing to which you can refer at future times. It will keep you from duplicating your work, and can also provide ideas for new lines of exploration.
The second journal is a log of all trading activity. This journal’s objective is to monitor both the performance of your trading system and your ability to execute it with consistency (follow your Plan). Poor trading systems are less frequently the cause of poor trading performance than the inability of the trader to properly apply them. That’s following the Trading Plan. The second journal is intended to make sure you do just that.
Journals are only as good as what gets put in them. If one fails to accurately track trades, it becomes hard to judge trading system performance. If one fails to record trading system tests, it becomes very easy to duplicate effort and frustrating when trying to recall the results of experiments for potential use going forward. So keep good journals.
In Monday’s post, we’ll move on to the core of your trading plan – the personal assessment.
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