The difference between making money and losing money can be as simple as trading with a plan or trading without one. A trading plan is an organized approach to executing a trading system that you've developed based on your market analysis and outlook while factoring in risk management and personal psychology.
No matter how good your trading plan is, it won't work if you don't follow it.
Traders who follow a disciplined approach are the ones who survive year after year after year. They can even have more losing trades than winning ones and still be profitable because they follow a disciplined approach.
Here is a summary of what the key benefits are:
- Trading that is simpler with a plan than it is without one.
- Reduced stress which means better health.
- Ability to gauge your performance, identify problems, and make corrections.
- A trading plan helps to prevent many psychological issues from taking root.
- A trading plan that is adhered to strictly will reduce the number of bad trades.
- A trading plan will help prevent irrational behavior in the heat of the moment.
- A trading plan enables you to control the only thing you can control... yourself!
- A trading plan will instill a large measure of discipline into your trading. Gamblers lack both discipline and a trading plan.
- A plan will enable you to trade outside your comfort zone. How many times have you let a loss run and cut a profit short because it was the comfortable thing to do? A plan, executed with discipline, will help to prevent this from happening.
- A plan is your GPS which will enable you to get from wherever you are now to wherever you want to be: consistent profitability.
- Your trading plan is designed in such a way that if you do take a "wrong turn", you will know about it very quickly and have the opportunity to correct the problem before losses spiral out of control.
One last thing before you head of to your next class...
Always remember that the trading plan is a work in progress.
As things change, the trading plan must change, too. Assess your trading plan and processes periodically, especially when you have changes in your financial or life situation. Also, as your research leads to changes in your trading system or methods, be sure to reflect those adjustments in your trading plan.
As Pipcrawler always says, "Adapt and survive!"
Remember, the main purpose of the trading plan is to keep you on task, and to operate in an effective and efficient manner to make good trading decisions. It is, however, only as good as you make it, and it is completely useless if it is not applied in practice.
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