How to Build a Successful Trading Plan

Trading plans should always be made out of clear and concise rules that dictate your trading strategy. These rules can and should be revised according to experience, but it’s always important to have them in order to be able to properly test and configure your trading strategy. Don’t worry about losing trade or two - give your trading plan a few weeks before you engage in any wide-scale changes.

To start with, you should first set some conditions for your trades, based on your trading style. These conditions should inform you when you go long or go short when you enter or exit positions and what technical indicators inform your decisions. The more specific your conditions are, the easier it will be to not only follow through and implement your trading plan but also to gauge and evaluate its effectiveness moving forward.

Once you’ve established the necessary conditions, you can then move on to figuring out some essential details. For example, do you open trades on a break above a previous high or low? You may want to use Fibonacci retracement levels with moving averages or focus on other kinds of inflection points. And it's important to detail precisely how you set long or short orders, for example, focusing on psychological breakpoints.

Have Firm And Clear Rules

When you have the details of how exactly you enter into trades, you can then work on identifying when you should lock in profits or find that trade is invalid. Trends and prices can move fast, and even a good analysis can turn out to be wrong, so having firm rules for exiting trades is a valuable tool for ensuring that your losses are never too damaging.

For some trading strategies, exiting positions are based on similar signals as entry points. Just like Fibonacci retracement levels can be used to identify when to enter a trade, extension levels can serve as identifiers for closing them. Psychological levels are another good tool to identify exit points. Another method is to just set hard values for stop loss and profit targets, and stick by them scrupulously.

Remember that everything can, and should, be adjusted based on your risk profile. You should be prepared to risk a certain amount per trade per day. For traders that are just starting out, its recommended to determine your risk percentage, based on account balance, beforehand, and then stick to it.

Ultimately, having these hard and fast rules will help you quantitatively analyze and measure your progress over time. Keeping a trade journal with all the rules clearly spelled out will give you the feedback you need to improve going forward.