Introduction to Trading Plans

Published on: Jun 16 2011 by Michael Glass

Introduction to

Trading Plans

Trading Plan

I. What is a Trading Plan?
A trading plan should be considered a map. Similar to a map that you would use on vacation, a trade plan should point you in the right direction (like a compass).  A
trading plan establishes and defines your route to success by identifying parameters to help you reduce errors.
II.  Components of a Trading Plan

A Trading plan, like a map has components. While a map has a scale, interstates, a compass and lists capitals, a Trading Plan has components as well
a. Investment
b. Goals
c. Method
III.  Types of Trading Plans

There are different types of maps (sector maps, scan maps, basket maps and weather maps for instance) and you should have varied trade plans depending on
your investment objectives.
IV.  Effective use of Trade-Plans
Just as maps allow a traveler to get to their final destination, a well thought out and followed trade-plan should provide consistency in your trading and help you
reach your goals.
a. As a professional, you would never consider attending an interview unprepared, nor would an athlete fail to prepare for an event. As an option trader, you need to be well prepared.
b. A trade plan (like a map) will allow you to see patterns and adapt your trading.
c. A Trade Plan should help you to recognize patterns, correct and improve on any mistakes you might make.
d. A Trade Plan is like a checklist or a routine that helps you determine where your investment and helps you determine what your next step should be
V.  Summary
  • A Trade Plan is a tool that encourages continuous learning
  • A Trade Plan allows fine tuning as you compare success and failure
  • A Trade Plan provides a tracking system
  • A Trade Plan is a valuable training tool
  • A Trade Plan is a valuable trading tool
If you purchase 1,000 shares of IBM stock at $100.00 and then estimate that $95.00 is your best technical support level, you need to take action at $95.00 A Trade Plan allows you to be a trader instead of a holder.  A solid Trading Plan allows you to plan, not pray!



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