What are the secrets of a winning trading plan

Why is a trading plan vital? A trading strategy is the center of your business. Without a business plan most businesses will fail, the exact same philosophy applies to trading plans.

A well defined and executed trading plan will allow you to stay flexible whilst being disciplined.

What's a trading plan?
A good trading plan is a guideline to assist you to make good trading decisions.

It is made up of of two basic parts:

1. Trading system or technique for buy/sell indicators
2. Money management parameters

Developing a trading plan is usually very time consuming, because of this, most people do not bother. In far too many cases the instant gratification of trading simply overwhelms the trader.

A trading plan does not have to be complicated, in actual fact it is often better not to be so.

An illustration of a minimal trading plan is:
"Buy 1000 share CFDs in Google on open the day after my entry criteria has been met."

You could possibly follow this every single day and never need to think very hard. That is in itself a bonus. It means it is simple to follow and easy to stick to.

Professional trading plans are nearly always more complex than this. Why? Because to trade professionally you will have to be able to persuade people to part with their funds. This is naturally not always easy!

The sort of questions that a professional will be asked when they start raising money to trade with will include questions like:

1. How will you trade?
2. What kind of system will you utilize?
3. Which markets will you trade?
4. Just how much will you risk?
5. How much is it possible to lose?
6. What can you realistically expect to make?
7. Just how much are your trading costs?
8. How will you stop yourself from losing all the money invested?
9. How much will you risk at one time?
10. How many markets will you trade?
11. What's going to be your normal hold time?
12. How will you minimize risk?

These seem like simple questions, but be honest with yourself and write the answers down.

Ingredients of a trading plan
Trading plans are often extremely individual things. If one system worked for all then the markets would of course cease to exist, which is why they do not. A couple of pointers to help you decide on a trading system include:

1. Forget the "secret" systems, they do not work
2. You may have dissimilar systems for several markets, stay away from this if possible
3. Your system does not need to be mechanical, many would argue mechanical systems can not work
4. Should have the versatility for being long and short
5. It must have a money management plan that will help you control risk

Perhaps the simplest advice is to purchase something used by pros and figure out how to trade it. Experts know that the best systems to trade exhibit a few simple characteristics:

1. Have a positive expectancy of winning
2. Adapt to different markets
3. Have understandable entry and exit rules
4. Are not overly optimized
5. Utilize effective capital management rules

These types of systems are inherently nice to trade as there's a clear understanding that in the long run they make money. They do however need some effort to learn how to trade them, which tends to put off many traders.

Article Source: http://gamblingarticlessite.com

John Masterton is a professional CFD trader trading with Australia's largest and most popular CFD provider, IC Markets. John has published a number of articles on CFD education including guides and ebooks which you can download for free.

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