A well-designed trading plan is critical to trading success. It should ideally be based on investment principles and the right mental attitude.
Most investors have already experienced the stress of losing the value of their portfolio investments. After all, Wall Street always recommends buying and holding for a long time. This advice can be used by those who are planning long-term investments. But what about the one in front of whom the entire risk opens up when they see how investments lose more than half of their value. However, there is no guarantee that they will return to their original level. Even if this happens, it is not known how long it will take. The most optimal way out in such cases is a trading plan, which allows you to wait out an unfavorable time without unnecessary nerves.
A trading plan is the most important element of an investor’s arsenal. When forming it, you need to determine the conditions according to which you will determine the points of entry / exit to the market. Moreover, this must be done for both profitable and unprofitable sessions. You should not base your actions only on positive or negative news and start frantically buying or selling depending on its type. When you give in to emotions, it’s easy to make mistakes. It is to control the psychological state and prevent misses that a trading plan is needed.
The main components of any trading plan are:
- Investor type (long-term perspective, short-term trading, day trading);
- Allowable loss level.
The trading plan can be modified depending on the preferences and characteristics of the investor, but it should always take into account the basic market principles. Bill O’Neill in his book “Successful Investor” wrote that many people, both investors and experts, suffered because they did not learn how to use the principles and rules of investing. This was in 2000-2002. But even now there are many traders who neglect the trading plan, especially those who are focused on the short term. For example, an intraday trader might buy a stock for $ 15. If its price falls to $ 14 during the selected period, he can reconsider the deal. In this case, the recorded loss will be small – $ 1. In these conditions, those who conduct long-term trading can wait for the market to change in a favorable direction.
But a trading plan alone is not enough to make a profit. It is important to learn not to succumb to emotions. They can make the trader forget about the trading plan and make hasty, rash decisions. We must try to prevent this. One of the tools for controlling emotions is yoga. She trains leadership skills, teaches to overcome fear, relax, improves concentration and ability to make decisions. All these traits are inherent in successful stock traders.
The road to profit in Forex is not easy, but it pays off. All your efforts will pay off with construction.
