Putting Together Your Personal Trading Plan - Part II
March 14, 2008
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John Forman - The Essentials of Trading author
Yesterday we started looking at the real details of your trading plan. Today that continues. As has been the case all along in this sequence, what this post presents is excerpted from The Essentials of Trading.
Risk Management Strategy
A major subject for a seperate discussion, the result of which should be plugged in here.
Trading System(s) Employed
A major subject for a seperate discussion, the result of which should be plugged in here.
Trading Routine
Trading is a process. There are steps which must be completed along the way. Your routine must incorporate them. Certain things will be defined by your trading system or strategy, such as how and when market analysis is done and when orders get placed. For example, a longer-term trader might do the requisite analysis over the weekend and place the orders first thing on Monday.
Other things are more general, such as when and how you record your trades for accounting purposes. This is important for tax records. It is also important in the case of disputed transactions, which do sometimes occur.
Be sure to include in your trading routine the process by which you evaluate your trading. This means not only gauging how your trading system is performing based on expectations, but also how you are doing sticking to the Trading Plan. This is a learning tool in your development as a trader which can lead to improvements in your trading system, style, or methods. It is also a way to keep on task with your Plan. Remember how we said earlier that having a Trading Plan allows the trader to determine the cause of poor trading performance.
Modifications
The Trading Plan is a work in progress. That is something to keep in mind. As things change, the Trading Plan must change too. Go through the assessment process periodically, especially when you have changes in your financial or life situation. Also, as your research leads to changes in your trading system or methods, be sure to reflect those adjustments in your Trading Plan.
Remember, the main purpose of the Trading Plan is to keep you on task and operating in an effective and efficient manner given your operating parameters. It is, however, only as good as you make it, and it is completely useless if it is not applied in practice.
The next post in this sequence will speak to ways traders fail to stick to their trading plans and what you can do to avoid that problem.
Here are some other posts which might interest you:
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