5 Important Ingredients required for an Effective Trading Plan: Part 1 – Introduction

Biz PlanThis is Part 1 of a Special 5 Part series on how to write an effective trading plan. Before you start, please go through the Glossary at the bottom of the page. For related articles, please see:

Introduction

During my training in London as a trader, I often spent time exchanging notes and ideas with other traders. Throughout my time there, I noticed that some traders were excelled much faster than others. On the other end of the spectrum, some had no clue what they were doing.

Being curious as ever, I started to dig into the source of their success and failures, wondering what separates the cream of the crop from the rest. More importantly, I wanted to imitate and model the successful ones.

Throughout my research, I learnt that many novice traders either lack the education, lack direction or they were information overloaded. They were usually ignorantly happy to trade the market until they got hit by a road block. Some of these road blocks were just a small bumps in their trading accounts but some actually cause major carnage.

The common theme with new traders were (and still is) that almost always ONLY focused on placing trades. This is absolutely normal because without learning how to place a trade, you’ll never be able to trade. Sadly, many of these traders do not go beyond their existing development. In fact, they continue to place trades with real money and subsequently losing it all.

Usually after a few attempts and string of losers, they would decide to stop trading. They then arm themselves with the excuse of “It Does Not Work.” And this is the unfortunate truth for many novice traders, especially in this highly lucrative industry where many stories, both good and bad, have been published.

A Trading Plan*


“An Effective Trading Plan is the Foundation of a Solid Trading Edge”

– Alwin Ng

My personal view is that many traders fail to progress further because they fail to understand the psychology of trading. Of course, there are those who fail because they don’t fully grasp the knowledge require for trading. This can be in the form of Technical Analysis, Fundamental Analysis or both.

Which leads me to the subject of a good and effective Trading Plan. Like it or not, Trading the financial markets is not just another business, it’s a REAL business and all successful businesses have an Edge (also known as a Niche).

You can start off without a business plan and will probably be fine for awhile. However, you know that you won’t excel far without a solid plan. Plans may change along the way and that should be the right thing to do if you want to remain competitive and adaptive in order to maintain growth. While those who do have a Trading Plan often struggle as they’re only able to write a half baked one.

Having a Trading Plan does not guarantee that you’ll be successful. However, by default, not having a Trading Plan will most certainly put you into that (failure) category. In fact, having an effective Trading Plan is the foundation of building your Trading Edge – which is the ultimate goal of all traders.

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5 Important Ingredients required in an Effective Trading Plan is a compilation of results through researches and observations that I have thought about, dissected, and consolidated back into a formula that becomes what I believe is solid tool kit.

 

That’s all for Part 1 of this series. Please subscribe to my newsletters for the next few parts of this series.

Glossary

  • Trading Plan – a detail plan of one’s trading career. This is essentially a business plan which includes a trading objectives, financial/non-financial goals, implementation and etc.
  • System Rules – A simply a group of specific rules, or parameters, that determine entry and exit points for a given equity. Sometimes also known as Trading Strategy.
  • System Components – different parts of a System which contributes to the main system. For example, Exit Rules/Strategy is a system component.

 

 

Thank you and happy trading!

 

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