Using Your Trading Plan

Now we come to something quite basic, but I’m going to say it anyway. Having written your trading plan, now you have to hold to it. I would suggest keeping it on your desktop and open it at the start of trading. That way, you can refer to it during the trading day. It should be looked at especially when you are feeling doubtful or stressed. Frequently, an in-the-moment feeling of uncertainty may have been addressed by your trading plan. That may be how you had planned to manage your stops; or if you had previously determined that you would exit a move that stalls for X minutes or bars; or if a move is exceeding your expectations. That last is a particularly difficult situation to manage as we may remember past losses and be too hasty to lock in a quick profit. (I plan to have more to say about the subject of losses in the future.)

A trading plan may not cover every contingency. But it should give you a good foundation with which you can work and develop. As you gain experience and, hopefully, good judgment, you may need to modify certain sections. Also, the markets are not static and markets can change. Your trading plan should reflect those changes.

But, I think, one of the greatest benefits of a good trading plan comes from the thought that went into it. The better the effort at the beginning, the better the preparation, the better will be the end results. Think of it as a surgeon does. He or she knows that, although they may have done an operation many times before, every patient and every disease expression is different. What starts out as routine may change in unexpected ways. The better your foundation, the better you will be able to react to the changing situation. A hastily and sloppily prepared trading plan will not serve you when the going gets tough. So do take the time to think about the questions I asked and do try to answer them as honestly as possible. And do spend some time on writing your trading plan.

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