If you want to build a successful business, you need a detailed business plan. If you want to build a house, you need clear plans too. When it comes to achieving long-term success with trading, you will need to develop a thorough trading plan too that will work for you.

As the old adage goes, “Failing to plan is planning to fail”!

A trading plan is a framework that guides your entire trading activities in the markets. It is like a map that directs you to the ultimate destination of any trader… consistent profitability.

Having a trading plan is one of the key habits of successful traders. Some of the benefits of trading with a defined plan include:

• It simplifies how you make decisions
• It helps build the discipline required to achieve success
• It can eliminate subjectivity in your trading
• It helps identify areas of your trading that need improvement

It is important to understand that trading plans are not a “one size fits all” or universal. Different traders have different personalities, risk profiles, skills, and trading goals.

Here is how you can build a personalized trading plan to work for you:

Step 1: Describe Your Trading Goals

Goals are particularly important in trading. They give purpose to your trading activity and can help you to stay the course despite the noise and pressures of the market.

Still, it is important to have the right goals, because having wrong goals can impact your trading activity negatively. In trading, this means having a process-oriented goal, rather than one that merely focuses on the outcome.

For instance, it might be useless to have a goal of making $1,000 per day. This is because global financial markets are dynamic and such a goal may subconsciously lead to bad trading habits such as overtrading.

An example of a process-oriented goal is to only trade between Tuesday and Thursday because Mondays and Fridays are generally higher volatility days. Such a goal is focused on the process, and over time the outcome will be seen. Another example would be to always check the Economic Calendar before placing any trade.

A process-oriented goal will help you to stick to your trading plan as well as to improve your capacity as a trader. It will help you trade better, which will consequently impact your trading performance positively.

Step 2: Choose Your Preferred Tradable Instruments

There is no shortage of assets to trade, so picking the right ones for you is a key step in developing your trading plan.

At AvaTrade for instance, there are over 1,000+ tradable assets drawn from financial asset classes that include: stocks, currency pairs, commodities, indices, bonds, ETFs, and even cryptocurrencies. While a large selection of tradable instruments may imply expanded opportunities, it does not mean you should trade everything.

Technically, there is no bad instrument to trade. But trading the wrong one under inappropriate conditions, without the right knowledge or skills can lead to inconvenient losses. For instance, if you are trading currency pairs, trading EURUSD during the Asian session can expose you to wider-than-usual spreads and poor liquidity.

Some of the factors to consider when choosing the right assets to trade include:

• Liquidity
• Volatility
• Your time availability
• Your personal risk profile
• Data from the Economic Calendar
• News coverage from various media sources
• Information from technical price charts

Step 3: Define Your Trading Strategy and Trading Style

A trading strategy is a method you use to identify and take advantage of opportunities in the market. Every trader needs to have a strategy that they will use to pick out the highest probability trading opportunities as well as optimal entry and exit price points.

Most trading strategies use two broad analysis methods: technical analysis and fundamental analysis. The method you prefer will determine the type of tools and resources that will help you execute your strategy well.

For example, a strategy that uses technical analysis will take advantage of charts and mathematical indicators such as moving averages. On the other hand, a strategy that is predominantly fundamental based, will utilize a tool such as the Economic Calendar.

Some examples of popular trading strategies include:

• Trend following
• Mean reversion
• Momentum trading
• Range trading
• Breakout trading

The way you specifically trade is referred to as your trading style. Your style is a reflection of your personality type and appetite for risk. In online trading, there are four main types of trading styles:

• Scalping
• Day trading
• Swing trading
• Position trading

Step 4: Define Your Risk Management Plan

Risk management is one of the most important tenets of an effective trading plan. Every trader embarks on this journey to make profits, but whenever you open a trade position in the market, there is always the potential of incurring a loss.

Risks are always present in online trading, and a good trading plan will have a solid plan on how to anticipate and manage them.

Some of the strategies traders can use to manage risks in the market include:

• Choosing the right asset to trade in the right market conditions
• Using pending order types such as buy/sell limits
• Using conditional orders such as stop loss and take profit
• Choosing a favourable leverage level
• Trying out new or tweaked strategies on demo accounts
• Watching out for releases of high-impact data

Step 5: Your Trading Psychology

Trading psychology refers to the emotions and feelings traders experience during their trading activity. Money is an emotional subject among humans, and in online trading, your emotions can be triggered in an instant.

Profits can be printed on your charts as fast as losses, and emotions can get the better of you. These emotional swings can interfere with objective decision-making. Some of the risks of negative emotions and feelings in the market include:

• Overtrading
• Impulse decision making
• Trading with bias
• Revenge trading
• FOMO (Fear of Missing Out)
• Not using stop losses

An effective trading plan recognizes that emotions cannot be avoided because we are, after all, human. The strategy is not to eliminate emotions, but rather to be aware of them and control them.

Mastering your trading psychology will give you the discipline and mental edge required to sustain a successful trading career. Traders can use various measures to keep themselves on track, such as taking breaks and implanting rule-based systems to control their emotions and feelings while trading online.

Step 6: Journal Your Trading Activity

Journaling your trading activity is one of the ways to build a trading plan that works for you. You need to log your entire trading activity from pre-trade preparations to after you exit your position in the market.

A detailed trade journal will give you a comprehensive analysis of your trading activity and help you improve your performance. Some of the benefits of a trade journal include:

• Keeping you accountable
• Maintaining discipline and consistency
• Helping you identify your best strategies
• Highlight your trading strengths and weaknesses

A trading journal is a powerful learning tool that will ultimately help you improve and enhance your trading plan’s efficiency.

Step 7: Review and Evaluate

A trading plan is a living document whose effectiveness is subject to review and optimization. You should routinely audit its performance and make changes to it if necessary. The idea is not to constantly tweak your trading plan but to ensure that it grows with you.

As you become a better trader, your trading plan should also reflect your new reality. As a beginner, it is recommended that you have a strict trading plan. But as you become more familiar and experienced with the market, there is room to make your trading plan more flexible.

Final Word

A trading plan is essential for any trader wanting to succeed with online trading. Trading without a plan is essentially gambling. But like any tool, a trading plan is only as good as its user. You must ensure that you stick to your trading plan with discipline and consistency to realize its benefits.

Keep learning, growing, and developing your trading plan with the AvaAcademy which is packed with resources.

Open a risk-free demo account and test your trading plan now!