Trading Stocks For Beginners: How To Make A Simple 5-Part Trading Plan
Did you know that trading without a plan is the #1 reason most traders fail to succeed in the markets?
In this video, I'll show you an incredibly simple 5-part trading plan that you can apply as a template for your trading, and go from dreaming about making a plan, to having a simple well organized document that's easy to follow and is fit for a professional trader.
#1. The Market & Instrument
For most traders the market and instruments they trade are whichever ones have recently caught their attention. Unfortunately though this jumping around from market to market and instrument to instrument keeps them from succeeding, with never enough time spent in any one market or instrument to really learn about and become good at trading it.
A great way to make sure your trading is staying focused is to have Section 1 of your plan dedicated to narrowing down the market and instruments you will trade. By choosing to focus your attention up front, your plan will keep your attention on the specific market and instruments you want to truly become an expert at trading.
#2. The Timeframe
Deciding on the timeframe that you will use to make your decisions is something that gives many traders a huge amount of difficulty. This is because there are so many timeframes to choose from, and so many sources arguing for the merits or pitfalls of each, that it can be completely overwhelming... and many traders resort to jumping from timeframe to timeframe because of this...
What you need is a simple Section 2 in your trading plan that narrows down exactly which timeframes you will use to make your trading decisions. This is a great way to keep your analysis consistent and effective, and it will keep your strategy much more simple overall when it is focused on just one or two different timeframes that you have pre-selected as the ones you will use.
#3. The Entry
There's no escaping the fact that every trader has to eventually decide when to enter a trade. The problem is that not having exact entry rules means every trade is completely random, and unless you're extremely lucky over and over again, these random entries are likely to make your trading feel more like a game of chance, rather than the true application of planned speculation.
An elegant solution for making your trades quantifiable and at the same time easy to analyze after the fact, is to have a Section 3 in your plan where you list clear entry rules that you will follow to make each trade. This way you'll always have an exact checklist of rules that must be met before you place a trade, and you'll have a crystal-clear vision of how your trading analysis is actually working in the markets because with clear rules to follow, you can also accurately test your strategy.
#4. The Stop Loss
Putting on a Stop Loss for every trade you make is one of those things that you've heard about a million times, and if you're like most traders, you probably do put on a stop loss most of the time but each time there is a varying level of risk.
A simple solution is to have Section 4 of your plan where you write down your exact rules for putting on a stop loss for each and every trade you make and the maximum percentage of your total account value this stop loss can risk. This way, there can be no surprises and you will find yourself building the stop-loss habit with greater ease.
#5. The Exit
Once we have a trade going in our favor, the tendency can be to either take it off far too early, or to not take it off at all, letting it go from a position of profit to right back to where the trade started… or worse.
By having Section 5 in your plan be where you write down how you will exit your winning trades using Trailing Stops, Profit Targets, and Early-Exit Signals you can bring typically difficult-to-end trades back into successful profitable exits.
~ Jesse Jones, Stock Market Profile
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