trading plan

What Is a Trading Plan?

One of the most common mistakes new traders make is to fail to prepare a trading plan.  As simple as it sounds, a trading plan is a blueprint that outlines your trading strategy in precise terms so that you know how and when to trade, and it makes decision-making much more consistent. Trading without a trading plan is like running without a finish line – in the professional, risky game of CFD trading it’s imperative that you’re on top of your plan and strategy so that you can steer your trading account towards success.  Choosing trades and executing them is one thing, but without a sense of overall direction, your chances of achieving your trading goals are significantly reduced.

A trading plan essentially sets out your strategy, targets and objectives, so that you can benchmark your actual performance against forecasts and make judgements on your portfolio depending on how positions materialise. Trading blind, i.e. without a trading plan, is the equivalent of building flat pack furniture without the instruction manual – while you may be able to chuck a few successful trades together without reference to the plan, your best chance of establishing a solid, profitable trading account lies in planning and strategising ahead of time.

Stick to Your Plan

Working out a defined strategy for how to trade your CFD portfolio is a task best handled outside of the trading day, and serves as your trading blueprint for when the markets start moving. By sticking to your plan, you can more effectively map out where you need to take your portfolio, which can help identify the types of trading opportunities you should pursue to meet your goals.

Your trading plan should set the parameters of how you can trade, and should specify what you’re looking to achieve at regular intervals.  Generally, this might be expressed as a percentage gain, or points gained, and should be used as the template for your daily trading.

Forecast ahead and decide where you need to be in 30, 60 and 90 days and ensure that you stick to your objects.  The trading plan should be the rulebook for your trading and your performance, and as a serious trader, it’s your job to make sure your targets are being met.

Devising a trading plan ahead of schedule can also help make the decision making process easier during the heat of the trade.  In some instances, for example, it may be that in deciding whether to cut or run on a trade, your trading plan shows you the best course of action. How are you trading against the day’s forecast? Is your trading inclination compatible with your pre-defined strategy? While deviating from the strategy can be possible through a conscious positive trading judgement, sticking to the rules you’ve laid down beforehand is the best way to breed a degree of consistency into your trading, and to ensure you have defined objectives and targets to work towards.

CFD trading can be lucrative, but only those traders that commit and take the risks seriously can hope to succeed long-term. Professional trading is as much of a business as any other, and must be given the respect it is due. A trading plan, if applied, can be one of the best ways to ensure appropriate care and planning has been invested, with a view to giving your account the best chance of generating a return.