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| Trading Plan & Trading Diary Friday 07:24
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| What
elements should I include in my trading plan? What information
should I put in my trading diary and why is this an important
tool?
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| Re:
Trading Plan & Trading Diary by Louise Bedford today 09:15
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Trading
Plans
Usually only about 5% of traders have actually written down
their trading plan! No wonder there are so few winners in the
sharemarket! People who treat trading as a business will receive
business-like results. Effective business plans amplify your
chances of success. If you approach trading haphazardly it is
unlikely that you will ever earn a significant income from the
markets.
There are four components that you need to record in your
trading plan. Unless you have written down these elements, in
periods of trading pressure, it is likely that you will react
emotionally, instead of objectively:
* Entry requirements
* Stop loss procedures
* Profit taking methodology
* Position sizing
Your trading plan should be reviewed on a frequent basis to
ensure that your system is in line with your current objectives.
Short-term traders should review this process every month. If
you are a medium-term or longer-term trader, every 3 – 6
months should suffice.
Because trading is largely a solitary occupation, you will need
to be responsible for your own trading development. This forum
can help you to develop your skills as a trader, but it is
largely up to you to ask the questions that you need to know
about, in order to be guided in the right direction. Achieving
objectivity is a difficult prospect. You will accomplish trading
excellence by regularly analysing your own strengths and
weaknesses.
Trading Diary
My key to maintaining objectivity is to keep a trading diary. I
keep an A4 ring binder, and assign one page to each share that I
buy. All of the most successful traders have some form of
recording their trading history. Before entering a trade, I
record my thoughts about the trade and my analysis. Unless I can
justify my trade on paper, I will not enter the position.
Imagine that you were trying to convince another person, who is
incredibly sceptical about shares, to buy the share that you are
suggesting. If you could win such an argument, go ahead and buy
the share.
Before I enter a position, I write down in my diary my entry
price, the number of shares that I am buying, my stop loss, and
when I intend to move my stops to breakeven, and then onto a
trailing stop. I also record the percentage of risk that I am
attributing to this trade eg 1%, and when I intend to pyramid my
position.
It is essential to keep your records in date order and to
separate your completed transactions for each trading month.
After each trade has been completed, write down your profit,
your loss, the amount of time that you held the share and the
main lessons that you have learned. After making a profit or a
loss I record: What did I do well? What would I do differently
if I repeated this trade?
Unless you have written down your trading plan, your chance of
long-term survival in the sharemarket is slim.
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