2008-09-09: Develop your own trading plan
To be successful in trading it is important to develop a strategy or game plan that is consistent with your goals and style. The ultimate goal is to make money, but there are many different methods to go about it.

A saying in business "Fail to plan and you plan to fail", illustrates a key factor on the road to trading success. If you have a written trading plan, it is no absolute guarantee for success, but you have removed one major obstacle. You have the opportunity to map and modify your course. By documenting the process you learn what works and how to avoid repeating costly mistakes.

A system that works over time is one of the components of a good trading plan. Confidence is vital. A tested system shows you that periods of drawdovn are followed by times of profit. How much drawdown can you endure? Numbers of risk and reward should fit your trading style and risk tolerance. Realistic profit targets and risk/reward ratios must be set. Entry and exit rules are crucial. Professional traders lose more trades than they win, but by knowing when to take exits, they still end up making money. Keeping records is a means to monitor and evaluate your trading. This is the ultimate measure of your trading plan.

A trading plan involves scenario development to prepare for different situations.
There are going to be ups and downs during a trading year.To deal with losses and adversity is not always easy, but it is important to focus on the next trade and try to build some momentum. Every trader has losses, the important thing is how traders deal with their losses. Stay with the facts and don't let emotional decisions enter into your trading plan.

There is no guarantee that a trade will make money. The trader's chances are based on his skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn' be there. By letting the profits ride and cutting the losses short, a trader may lose some battles, but he will win the war.

Recognition of your limitations is your best guide to creating a trading plan, and when combined with realisitc goals and thoughtful consideration of system characteristics and performance records, it will help you find success. Maintain and improve upon your sucess with strict compliance to a schedule, organization, and careful analysis of accurate performance records.

Hurricanes, political decisions, oil prices, weathercasts, markets that never sleep; it's easy to see how a trader can seem overwhelmed. An oversupply of information may make it difficult to formulate and execute your trading plan. Nevertheless, having a plan is crucial if you want to become consistently successful over time. The strategy trading approach ensures consistency and continuity. By testing your strategy on historical data, you will understand its behavior and know how likely it is to produce profits. If you find that your trading strategy was profitable and fits your trading personality, you can feel confident in using the strategy to make future trading decisions.