Set Up Your Trading Plan In Less Than 10 Minutes

On Monday we have mentioned some of the most common trading mistakes you should avoid at all costs. At first place we’ve said not having a trading plan represents a serious mistake that increases your risk exposure significantly. But first, let’s revise the meaning of a “trading plan”.

Definition of Trading Plan (by Investopedia):

“A systematic method for screening and evaluating stocks, determining the amount of risk that is or should be taken, and formulating short and long-term investment objectives. A successful trading plan will also involve details like the type of trading system to be used. Most plans require the use of various types of technical analysis tools.”

Here at FortFS we’ve decided to put together a few tips and steps to guide you in the creation of your trading plan. Remember, each plan should be adjusted to you. You should not copy paste.

What do you want to achieve?

Having a clear vision of what you want to achieve and when will change your life in all aspects. And with trading there is no exception. A good place to start is to set SMART goals:

• Specific: Think, think and think. It is all about answering to yourself: “What do I want?”
• Measurable: Always keep track of your progress so you can adapt faster to changes.
• Achievable: If your capital is $50, do not expect to make a $1000 gain in a month.
• Relevant: Never go to easy on your goals, they should motivate you.
• Time bound: Define a timeframe to achieve your goals and stick to that scheduled.

How and when do you intend to get there?

Set an strategy that goes in line with your goals and your trading profile. For instance, start with simple trading systems that offer you the chance to apply changes or improve it as your gain experience and increase your capital. Stay flexible.

What is your risk tolerance?

This question is strictly related to your trading objectives. For example, if your goal is to put some extra cash for retirement then it is possible RISK is not a word that should be associated with you. In that case, your risk tolerance would be low and your trading activity / strategy would be adapted in consequence. On the other side, a young trader might be more inclined to take higher risks in search for higher short-term returns.

What are your prefered guidelines?

In other words, how are you going to measure your success or failure? Is it by ROI (return on investment)? Is it by net gains? Is it by the total performance of your portfolio or will you count every asset category individually? These are questions that must be answered before sitting down in front the charts and putting your money at risk.

How do you plan to diversify your portfolio?

Always remember that diversification is of great importance when it comes to reduce risks. But diversifying can be fun and profitable. So select your prefered assets among small/middle or large capitalization companies, commodities futures or currencies.

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