Chapter 10: Trading Plan

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The thing that sets profitable traders apart, is that the winners focus on facts, current price reality, and historical context, while others base trading decisions on feelings, beliefs, and opinions

Questions to ask before you make your plan:

What exactly is your entry signal going to be? What price action or technical indicators will trigger you to enter a trade?

What is the risk/reward ratio for the trade that you want to take? How much are you willing to risk if the trade is a loser and your stop is hit? How much could you make if you are right? Is it worth it in terms of risk and stress?

What are the probabilities that this entry will be a winning trade based on past historical price data and charts? With the winning percentage in mind, how big do the winners have to be and how small do you have to keep the losers for the trading system to be profitable?

Where should your stop loss be? At what price level will you entry be wrong and signal you to exit the trade with a loss

Components of a trading plan. Entering a trade

You must know at what price you plan to enter your trade

Exiting a trade.

At what level will you know you are wrong?

Position sizing

You determine how much you are willing to risk on any one trade before you decide how many shares to trade

Money management

Never risk more than 1% of your total capital on any one trade.

What we learned

Your success as a trader will depend on how well you mitigate losses to your trading capital. Don´t get caught up in daily trading results. If you ask the right questions, and then go seek out the answers, the only barrier between you and success, is time.