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Trading Plan By TrendFollower

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@elle,

Thanks.¬†ūüĎć

Those who do not have a plan will convince themselves and try to convince others that there is no point in having a trading plan. This for me can only lead to losses and being an unsuccessful trader. 

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Your trading plan should include which signals and indicators you are going to use. This can change of course where you may add certain indicators later or remove certain indicators but they should be listed in your trading plan. 

I like volume, moving averages, relative strength index (RSI), momentum and the parabolic SAR. 

I like identifying breakouts as early as possible via monitoring price action and then seeing if they manifest into trends. Once they do then I want to try and establish which are the strongest trending. This is an important part of my trading strategy. I want to try and trade the strongest trending assets to give me the best possible chance of success or to try and increase my chances of success. If I look at a chart this cannot demonstrated to me then I will not trade that asset. I do not have a trading system which means that I have to trade on a given day, week or month. I have the advantage of only executing a trade when to me it is evident that the asset is one of the strongest trending assets available at a given time to trade which meets certain parameters and requirements. 

If you were going into a boxing match with an elite boxer then part of your preparation would include fitness, training, boxing technique, power, etc. Part of it would also include looking at the strengths and weaknesses of your opponent. Without proper preparation you would have a clear disadvantage in the boxing match as the opponent is an elite boxer. This is why in my opinion you need a trading plan when trading as this is the 'preparation' part of going into battle with the market. 

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When one makes a plan they are thinking about what they want to do in the future.

So a trading plan should articulate what a trader wants to achieve in the future. It should clearly highlight what they intend to do to ensure they achieve what they want to. 

A trading plan will have to include decisions (right or wrong) as it cannot be wishy-washy. The trader must decide upon its trading methodology and the trading plan should clearly show this.

 

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Trading Size and Risk Management are two important factors to consider and include in your trading plan. When you combine the two you should be in a position to allocate the right amount of capital to your trades based on the level of risk you wish to take. This sounds easy but can be tricky. 

The one thing you will read is to never put all your capital on one trade. I agree but I also think that if you have a very strong conviction on one of the strongest trending assets which you have identified as early as possible then to maximise your returns you may decide to allocate more capital on that particular trade compared to other trades. I do not think there is anything wrong in that but different text books will have different ideas on this. This is where your risk tolerance and mindset comes in.

This needs to be articulated in your trading plan in some manner so that it is clear how you will allocate capital to each trade and what the rationale will be. Without this how can one determine trade size on positions we wish to trade?

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Your trading plan should include something different than what everyone else is doing. That uniqueness which gives you an edge over other traders.

I would like to take this opportunity to quote Sir John Templeton (below):

If you want to have a better performance than the crowd, you must do things differently from the crowd.

The trading plan does not need to be complex. In fact the simpler the better. Articulate things in 'Simple', 'Plain' and 'Clear' English. 

As Warren Buffett once said:

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.

 

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