How To Develop Your Trading Plan?

How To Make Your Trading Plan? “Fail to plan and Plan to fail.” Always remember this famous saying. This is very true. Without a plan, you don’t have any chance of success. Before you embark on any endeavor, you need to have a solid plan as to how you will achieve the results that you want from that endeavor. Trading is a serious business. You will be putting your hard earned money at risk when trading.  So you need a solid plan that can give you the results that you want. In this post, I will discuss how I had developed my trading plan and tweaked it with time to make it better.

Goal Setting

Goal setting is the first step. Set realistic goals. When you develop your trading plan, write down your goals on a piece of paper. You can revisit the goals overtime and make amendments accordingly. My first goal was to make at least 100% return per month. With this goal in my mind, I started developing my trading plan. In order to make at least 100% return, I needed to make 5-10% return daily. Was it doable? Yes!

On pairs like GBP/USD and EUR/USD, it is very much possible to make 5-10% return daily. Making an average daily return of 5% translates into a return of 100% per month since there are 20 trading days in one month. Now making 5-10% return daily requires a strategy!

Strategy Selection

Having set your goals, you now need to have a strategy that will help you achieve your goals. I settled on scalping. This is how I trade. I trade on the M5 timeframe in the direction of the main trend on the H1 and H4 timeframe. I look for a 5% return which means making 30-50 pips daily. But if I see the trade developing into a big one with the potential to make 100-200 pips, I try to capture that as well. So basically I am scalping but when the opportunity presents itself, I can turn a scalping trade into a swing trade. The advantage of my strategy is that scalping can be done anytime of the day. Sometimes, I make 5% return in just 30 minutes. Then I might continue for 30-60 minutes more or I might call it a day. Previously, I used to try to capture the move as long as it lasted. But now when I have made my target of 5-10% return daily, I call it a day.

Strategy Setting

As you can see from the above screenshot, I basically use MACD, RSI and the Stochastic and trade the divergence patterns that appear on the M5 timeframe. I will discuss my strategy in more detail in the coming emails. So whatever strategy you choose to achieve your goals, you need to make sure that you can achieve your goal easily with it. There is no point in fatiguing yourself in achieving your goals. In the long run, it will wear you out as a trader.

Making 5% return is doable and easy on pairs like GBP/USD and EUR/USD! I mainly trade GBP/USD. This focus on one pair helps a lot as each pair has got its own unique behavior. When you develop your trading plan, make sure you set realistic goals and then choose a strategy that can help you achieve that goal. You can set your goal to make 3-5% return in the beginning and when you become more proficient, you can increase it to making 5-10% return.

System Development

The final step in the trading plan is to develop the system that tells you precisely what risk you will take per trade and when you are going to open a trade and when you are going to close it and when you will stay away from the market. When your system has been developed, you are all set to put your trading plan in action! Goal setting is easy. It takes time to select the proper strategy and then develop your system. Developing a system takes time and testing. Once you have the system, your trading plan is complete. Now you can follow your trading plan daily!