Throughout my personal trading career, a trading plan is often neglected by the majority of novice Traders. A trading plan shouldn’t be something complicated and heavy, simplicity is the key. Set realistic objectives and checklists that you are able to stick to it strictly on a daily basis. These are some of the important elements should be included
There are lots of instruments for a trader to trade. Stocks, forex, BTC, just to name a few. Know which instruments you are trying to focus on. In your earlier phase, focus on one instrument, really dig into it, put in the work to master the craft.
‘Diversification may preserve wealth, but concentration builds wealth.’ – Warren Buffett
Multiple timeframe / Top-Down analysis is vital, it allows you to identify the long-term trend & short-term sentiment. But avoid distracting yourself with too many timeframes OR irrelevant timeframes. I’d always suggest to not look at more than 3 timeframes.
- Entry timeframe: Identify a timeframe that you’d find your entry triggers and place your trade, such as 5-30 min charts (Lower timeframe)
- Analyzing timeframe: Identify two higher timeframes that’d allow you to view the bigger picture better, such as 1h – 4h charts (Higher timeframe)
Remember to adjust the timeframes according to your trading behavior, e.g., if you are a scalper it is pointless for you to analyze the weekly chart OR if you are a swing trader looking at the 5m chart could be too intensive for your brain.
This is the most important aspect that’d determine your long-term profitability. There are 2 aspects to consider when managing risks.
- Risk per trade: Percentage-based risk is the most common method to manage your risk, such as 1-2% risk per trade.
- Maximum daily & weekly drawdown: Identify what’s the worst scenario you’d allow yourself to sink into. There will be times where you are trading on tilt, things just get worse. This is when your maximum drawdown comes into play, pulling yourself out of the emotional vortex , preventing yourself from those irrational behaviours.
Personal Strengths & Weaknesses
Explore your personality. Trading is about knowing your strengths & weaknesses, then leverage them into your advantage. There’s no way you can completely eliminate emotion in trading, we’re all human. But what’s more important is to organize your mind to control its performance.
- Aggressive: If you’re an aggressive trader, focus more on a trending condition, you should probably avoid the sideway condition (over-trade/ revenge trade tendency)
- Conservative: If you’re an overly conservative trader (fear & hesitation elements), you should probably reduce down your checklist and simplify your trading system.
This relates to your personal strengths & weaknesses too. Develop strategies/ systems that suit your personality the most, then keep improving it. Identify which market condition you’re the best at (Trend/ Range/ Channel), then develop successful strategies to capitalize on these market states.
Routine/ Action Plan
Successful Traders tend to find trading to be a ‘boring’ process, they simply scan through charts, identify setups that fit into their criteria. Have a set of routine, simplify them and stick to them everyday even if you feel lazy. For example, routines can include, but not limit to, the following actions,
- Spend 1h per day to analyze the market before you jump onto any trades.
- Journal your trades every night.
- Spend 1h per day to review & reflect your progress after market close.