Trading Plan PDF

Trading Plans: Trading With No PlanI have often tried to rationalise why it is that most traders have no plan whatsoever. It seems to be a combination of several factors but the primary one's I believe are as follows :

1. They have no idea how to write one2. They do not consider it necessary3. It is boring4. Making money is much more fun5. Successful traders don't have plans6. I have a mental plan

I am sure you have all come across the saying that goes something like this : " the person who fails to plan is planning to fail" - it has never been more appropriate than in the business of online trading. Notice that I call it a business, because that what it is. I make my living from trading and therefore to me it is a business. If you are involved in trading for fun, I would suggest that you try online poker or online gambling, as you will still lose all your money, but it will give you your adrenalin fix, and you will enjoy it more. Trading is a business, short and simple. It is about making money, and like any other enterprise requires planning and attention to detail if you are to succeed.

Of the six points listed above, the one that I hear most often is number 6, which is that he or she has a plan in their head. So to you use a business analogy for a moment, when approaching your bank for a business loan for a new venture, your response to the question " may I see your business plans" would be " don't worry, I have it all in my head" - I don't think so!!!!!! One of the first rules of a trading plan is that it must be written down. You might ask why? - good question - it is simply that if it is written down you will adhere to the rules you have written for yourself. If it not committed to paper, you will not.

It is much the same as with a stop loss. When I ask traders where there stop loss is, they say " I only keep mental stop losses". The reason they do this is fear that they will be forced to stop a losing trade. With a mental stop loss they can keep moving it down mentally which defeats the whole purpose. I have never yet found a successful trader who works with mental stop losses. These traders trade using emotion - a hopeless way to trade - you will never make money as the twin emotions of fear and greed will always be your enemy. We have a plan for a reason. It defines your trading in a set of simply stated goals, rules and objectives. It provides the foundation and the framework for your business. You could give it to someone to read and it would make perfect sense as a business plan. This is the purpose of this site in a nut shell - to help you write a simple, clear and concise trading plan, that would make sense to a non-trader. The fact that they do tells me everything I need to know about them as a trader which is :

1. They are unable to take a loss2. They trade using emotion3. They have no plan4. They live in hope of making a profit

So where do we start - as always at the beginning and as simply as possible by defining our goals and objectives before we can begin to write our online trading plan.

Trading Plan StrategyTrading Plans: The first step in developing your online trading plan is

probably the most difficult for many people, as we need to answer the following simple question : why do I want to trade?

A simple question, but one that is often not easy to answer, and certainly more difficult to put down in writing. Many people when asked this question simply say " I want to make a lot of money" Such a statement written in a trading plan is hardly useful as it ambiguous, and lacks any meaning whatsoever.

What is a lot of money to you, may be a little to someone else. Try to have in mind the meeting with the bank and the business plan - if you sat in from of the bank manager and said that your objective for the business was to make a lot of money - would you be taken seriously - probably not.

The next question would almost certainly be " what do you mean by a lot of money"! Please also remember that your objectives do not have to be based on financial goals. They may be about improving your self as a person, developing personal skills for use at home or at work. One lady who contacted me recently was involved in the financial world, and she felt embarrassed that she did not trade herself as all the men in her team told her they traded actively. ( whether this was true or not was a different matter entirely! - I suspect most of them did not!)

People start trading for many reasons, and it is this that you must define in order to start writing a plan. Below are some of the questions which you will need to ask yourself, in order to begin the process:

• Why do I want to trade the financial markets• Which markets do I want to trade and why• Is my personality suited to trading• What do I want to achieve from my trading• How will I measure my progress• What would I consider to be success

Trading Plans: Why Trade The Financial Markets

There are many ways to earn a living or to have some fun, and trading the markets is only one of them. So you need to understand why it is that you are considering this as a strategy. Personally, I started trading for three reasons. Firstly, I find the financial markets fascinating. Secondly, having run my own business for many years, I wanted to develop income streams which I could run from anywhere in the world and which did not involve

customers, delivery deadlines, or suppliers - in short a lifestyle decision. Thirdly, I wanted to provide quality free information on the web, which would help others achieve their goals and objectives ( particularly women ) as I believe everyone should understand and be in control of their financial investments. Now I could quite easily have started an on-line business of some description selling services which did not involve suppliers, customers, invoices etc but for me it was the markets which I enjoyed, and therefore set out to use them as the basis for my future. You have to be honest with yourself and play devils advocate to some extent - and answer the question as honestly as you can. If you cannot find a reasonable and believable answer which you are comfortable with, then I would suggest that perhaps you are living the dream which is sold by many, of trading as a means to great wealth with no effort! ( sorry if this seems harsh but it is normally the case) In simple terms, you have to analyse your reasons, and be honest with yourself.

Trading Plans : Which Markets And WhyLet's assume that you have analysed your reasons and have decided that trading the markets is for you. Which markets are you going to trade and why? Another big question I'm afraid! There are hundreds of different markets to trade and many different instruments. How are you going to decide which market and instrument is right for you? To some extent the answer to this question will be intertwined with your answer to the above and your reasons for wanting to trade in the first place. Speaking from personal experience, I tried several markets before finally settling on currency as my preferred market which is principally geared for traders. By this I mean, it is not an investors market and another question you will also need to address. Trading in stocks, is very different to trading in currency. The first is a cash market, the second is a derivative market. Trading in stocks is more akin to an investment approach whereas retail currency trading is simply 'betting' against a broker on which way a price is going to move.

So we have markets which are cash or derivatives, some are open 24 hours a day, others are not, some are more suitable for investment rather than trading, and so on! Some markets will be unavailable to you. For example your broker may not allow you to trade them without years of experience, or they may only be open when you are at work. All these elements will play a part in your deciding which markets to trade and why, and will all relate back to your answer to the first question.

Trading Plans : My Trading PersonalityThis is a question you have to ask yourself - is my personality suited to trading. For many people, the answer will be NO. On the making bread site you will find an introduction to the whole issue of who you are, and how it will affect your trading style, and indeed whether you will be able to trade at all - psychology of trading. Understanding your strengths, weaknesses, and core values will dictate not only how you trade, but all suggest the most appropriate markets to suit your personality. For a light hearted look that will start you thinking, have a look at the trading astrology star signs - it is a bit of fun, but hopefully does make the point about your trading personality. Finally, read the article I wrote about trading and your personality on the articles page - trading and your personality will take you to the relevant page on Making Bread, and it is the second article on the page entitled ' The Inner Trader And You'.

It is vital that you do not try to trade markets that are not suited to your temperament - an obvious question is how will I know without trying which is a fair point. I can only say that anything which is highly leveraged such as the derivate markets, tend to be higher risk than those that are not, for the simple reason that you can lose more than your initial stake.

Having said that, many of these markets now offer mini accounts or very small trading amounts. In spread betting for example you can trade contract for a few pence whilst you gain experience, and with currency you can open a mini account which limits price movements to a tenth of the normal contract size. My philosophy in all my trading has always been to start very small, and learn by making small mistakes. There is nothing wrong with trading a few pence or cents at a time, the markets will always be there for you, and you are far more likely to be successful taking this approach than any other. There is nothing to be embarrassed about - think of it this way - if your stake was a $100 and in a few days you had managed to make this into $200 by trading small amounts then you would have a 100% return on capital - not bad! - if someone asked what your returns were and you said 100%, they would be impressed. Trading and investing is about % return, not about how much money you make.

Trading Plans : My Trading ObjectivesWhat do I want to achieve from my trading? Is it financial independence, a better understanding of the financial markets, self improvement, a part time hobby, a retirement project ? - any or all of these are fine, but you must define them first so that you have a clear idea of why you are trading and what you hope to achieve.

Trading Plans : Measuring SuccessWithin your plan you will need to have targets which define your progress towards your ultimate goals and objectives. These need to be well defined and achievable. These goals can be time based, or financial targets, and you will need to measure them daily weekly or monthly. Remember that your trading plan is a living document so you may need to review these from time to time as you learn and gain experience. There is nothing wrong with this - the plan can be fluid, but the rules that you write within it must be fixed. Your plan is in place to help you achieve consistency in your trading by removing the emotions from decision making wherever possible.

OK - let's try to develop some online trading plans and see how we fit all the pieces of the jigsaw together.

Develop Your Trading PlansDevelop A Trading Plan For Stocks: I have given this part of the site

considerable thought as to the simplest way to help you develop your own trading plan. I have looked at many other sites and several books, and whilst they all suggest you have a plan with all the various elements, none give you a framework of the questions you need to ask, nor how to then convert this into a trading plan. In order to try to resolve this problem I have developed some hypothetical examples, which though they may not fit your precise circumstances, I hope they will give you enough detail to understand the issues you need to consider, and how the plan is then developed.

The examples are based on women but could equally be applied for the many men who I know visit my site regularly. I have therefore tried to make them 'non gender specific' by talking of partners rather than male/female which I hope isn't too confusing! I propose to lay each example out in the same way, with a brief synopsis of the age, lifestyle, work, dependants, personality etc which hopefully will make it more meaningful for you. In addition I propose to take each partner and look at the scenario from the other partner's perspective.

Trading Plans - Example Young CoupleFor our first example let us assume the following :

• A young couple living together• Age - mid 20's• Both are working in well paid jobs - say 75,000

USD each - so a total income of 150,000 USD p.a They enjoy a good lifestyle.

• No children at present but likely that one partner will give up full time work in the future

• Partner A - easygoing, and generally relaxed about life. Not good with money and all financial planning and household decisions are left to Partner B. Ambitious and likes the challenge of learning and is always open to new ideas.

• Partner B - highly organised and likes to have everything under control. Finances are planned and budgets set accordingly. Does not like credit. Not good with managing change and likes the security of familiarity and routine.

• Financial commitments include a large mortgage on the house, life insurance, health cover, and pension arrangements. They have some savings and some equity in the property.

Trading Plans - Partner BSuppose that the couple have discussed the future and both agree that at some point in the next few years they would like to start a family. This naturally raises the question of losing one salary. Following various discussions they have agreed that partner B could take a part time job, or start a business from home, possibly on the internet in the first few years pre-school. Trading or investing is one of the options discussed and Partner A is keen, but Partner B is very nervous as this involves risk and has heard that most people lose money.

Partner A understands knowing that Partner B has a different personality and view of risk, and therefore suggests that they could start something now, to see how they get on, and yet still keep their existing income. In other words develop something on a trial basis, whilst both keeping their full time jobs. If it works out, then fine, if not, they can always try something else. This plan seems to make sense to Partner B as the only risk is in losing a little money in order to see if they can develop a separate income stream to replace one salary in due course. Having reached this decision the couple then have to try to decide what market to try. Clearly the markets that would suit Partner A, would probably not suit Partner B given that they have very different personalities. In addition, they will also have to consider the fact that they are both going to be at work during the day, so whatever they do consider and how they work, will have to fit in with their existing working arrangements and lifestyles. This seems to be an issue until Partner B suggests they look on the internet and buy some books on trading and investing which will hopefully give them a better understanding and some ideas.

Several weeks later and after looking at various markets and talking to friends and colleagues, some of whom are involved in the financial markets, they decide that a low risk approach to the markets would suit Partner B better given the personality and view of money and risk. Given that they have no experience of trading or investing they decide that they should start with low risk stocks and build their experience slowly. Hopefully in the next 3-5 years they will be able to build enough extra income to supplement their drop in salaries when they start a family. Even if this is not successful, they will hopefully be able to use their experience to try other markets.

They have been advised that day trading is not a sensible option and therefore this strategy seems to fit well with their overall plan as they can continue to work full time, but catch up with their trading in the evening using end of day data online. They both feel that this is a sensible start, and are now in a position to write the opening part of their online trading plan!

My Online Trading Plan - Partner B

My Overall Objective

In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in low risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

The above states in simple terms the trading objectives for B. Anyone else would be able to pick up the plan and read it, and it would make sense. This is the yardstick by which you should judge your plan. If you could present it to someone else to read and it makes sense to them, then you have a reasonable plan. Having decided on and stated our overall objective in broad terms, the next issue we need to decide is how much money we plan to invest in the trading, and this will be intertwined with our overall plan for our earnings. To take a silly example, you could not expect to generate 100,000USD per year starting with 100 USD capital! So we have to take have a realistic approach to this issue. Now lets go back to A and B.

A and B are happy that they have made some progress and at least have some idea of how they ate going to develop this income stream in the next few years. However there is a along way to go before they have a completed trading plan. The next issue is how much money they think they will need. As new traders they have little idea on how much this should be given the markets they are trading. From their market research they have read about markets where you can start with a few hundred dollars, but these tend to be very high risk. They have also been advised that any money they use must be from savings, and must not be borrowed against the house or credit cards. In addition it must be money they can afford to lose, and should never be more than 10% of their total net worth.

Let's look at this in the context of the existing earnings and what we are trying to achieve. Partner B's salary is 75,000 USD per year - is it reasonable to consider replacing this completely in 5 years and if so how much capital would we need in order to achieve this scenario. Intuition should tell us that this is unlikely for several reasons. Firstly we have already decided that this is a low risk approach given B's personality and view of risk. Given this is the case and it is low risk it would seem unlikely they would be comfortable investing the amount of capital required to

generate this level, at least in the early stages with no experience, which could be ten times this amount. Remember that the average return for most fund managers is between 5% and 10%, which always begs the question if this is the case, why most people don't just put it in the bank!!

Clearly from the above there is an imbalance between B's current salary and what they are likely to feel comfortable trading in the market. So A and B decide to approach the issue from another angle. B checks the savings and they find they have 25,000 USD to use for the project. B is very uncomfortable about using all their savings, and A suggest that as a start why not use half the amount, and see how they get on over the first few months. If things go well, then like a business they can always put more cash into the business after the initial "toe in the water" approach. Partner B agrees and feels re-assured that they are not risking all their savings, and they eventually decide to start with an initial 10,000 USD. Their objective is to start small and grow income slowly as they learn so this seems to fit within the plan. In addition, like a business plan they can always add cash and amend targets as their experience grows and they get a better understanding of the markets. So we now have the next part of our trading plan which is our strategy. We know how much we plan to invest and the markets we are going to invest in are blue chip stocks. They decide that they will only trade the long side of the market, and whilst this can have problems of its own, on balance this is probably safer as there would be other issues to consider such as a margin account. There are other ways to trade short and they will consider these once they have built a sound base of experience.


My Objective


My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques.

Now the next part of the plan is a little more complicated and involves a decision on your part as to whether you propose to trade using fundamental data or technical analysis. If you click on the link here it will take you to the page on making bread which addresses this issue as the types of traders. This is a big subject and it is critical to your success that you decide which approach you favour. There is always an endless debate amongst traders as to which is more beneficial, but in most cases you will find that technical traders use fundamental data for part of their analysis, and visa versa. Now for the purpose of developing the plan, let's assume that Partner B proposes to use technical analysis as the primary trading style, so we can now write the next part of the plan.


My Objective


My Strategy

I plan to start my trading with a cash sum of 10,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in only blue chip stocks on the US markets whilst I learn the basics of trading. I will not be trading short but may consider this in future using other trading techniques. I will use technical analysis as my predominant method for choosing stocks to trade.

OK - now we are ready to start to put a little details into our online trading plan.

Share Trading PlansWrite A Trading Plan For Stocks: The previous page is probably the most

difficult part of writing an online trading plan, as it involves issues and topics which are both complicated and broad.

They involve asking yourself many questions and being honest with yourself about your personality and view of risk. If you do not have anyone to discuss it with such as a partner, try to find a friend or colleague who will give you an impartial and balanced view of your ideas and plans. Once you have set down your overall objective and your trading strategy, you are now in a position to start writing the framework of rules and guidelines which will put the flesh on the bones. Just to save you going back a page I have copied the plan so far, and placed it below:

My Online Stock Trading Plan - Partner B

My Objective


My Strategy


Now Partner B feels they are making progress, whilst Partner A has wandered off to do something more interesting!! Partner B carries on alone, feeling that the plan gives a sense of support and direction to the business. The first issue is then, having decided on only trading blue chip stocks, can we define this as part of the plan. After some thought and further research B decides that the DOW 30 would be too restrictive, and that the S&P 500 will give a better choice, whilst still keeping to the plan in trading in good quality companies. Now the next decision is slightly more difficult as B has to decide how to select those stocks. B knows that all the data will have to be analysed in the evening and at the weekend so for charting will use an end of day data package. Following further reading and analysis B decides on the criteria for stock selection and includes this in the next section of the plan:


My Objective


My Strategy


Stock Selection

I will only trade stocks in the S&P 500 index, and will select my prospect stocks based on the following criteria using end of day data:

1. Stocks must be in an up trend2. Stocks must be trading above their 100 day SMA3. Stocks must be performing better than their sector4. Stocks can be from any sector5. Only consider stocks with a 2% up move on the end of day data

Now, you can make the criteria as complicated or as simple as you like - in this case B is a new trader and only has a few criteria for stock selection. The next issue for Partner B to decide upon are any trading rules and understands . The most important part of trading is to preserve trading capital. So B decides that the first three rules relate to stop losses, which are simply to have one on each trade, and this is to be placed at the same time as the trade. Partner B has also heard about the markets being very volatile as the market makers move prices around during the first half hour and last half hour of trading. B therefore decides to have a rule about this as well.


My Objective


My Strategy


Stock Selection



Trading Rules

I will only have four trading rules which will be as follows :

1. Every trade that I open will have a stop loss in place2. I will always place the stop loss at the same time as my trade3. I will never move my stop loss down.4. No trades to be made in the first or last 30 minutes of trading

Now Partner B has to decide on the rules for money management which can be a little complicated. In simple terms most professional traders will only risk 0.5% to 1% of their capital per trade. In effect this means that in simple terms they can get between 100 and 200 trades wrong before losing all their capital. B decides that given that the stocks may be expensive in value, and since the loss percentage will govern the trade size, then 0.5% may be more appropriate as a start. B also decides that the maximum amount of capital at risk at any one time should never be more than 20% of total capital. With these rules in place B feels more comfortable that the trading capital will be protected at all times and that the worst that can happen is to lose 20% of the starting capital when combined with the trading rules. Finally B decides that in general stop losses will be set at 10% below the market price as a maximum - they can be set tighter if required but this is the maximum allowable. Finally, as we have decided that as we are not day traders no positions will be open and closed within the same day. B also decides that all dividends will be reinvested in the business as trading capital. So now we can write the next part of the plan which dictates the trade sizes and capital management.


My Objective


My Strategy


Stock Selection



Trading Rules



Money Management

My money management rules will be dictated by the following rules. To calculate the correct trade size I use the following formula : 50/market price x 0.10

1. The maximum loss per trade to be 0.5% of capital = 50 USD2. The maximum number of open trades at one time to be 403. Trade size to be set by loss size and stop loss position4. Stop loss to be set at a maximum of 10% below market price5. No trades will be open and closed in the same day6. Income from dividends to be reinvested in trading capital

Now we come to a part of the plan which is all about measuring our progress and naturally this is generally a financial target of some form. In any business we set ourselves financial targets against which we measure the performance of the business. Naturally in trading this can be very difficult so it is better to err on the side of caution and be pessimistic rather than wildly optimistic about our forecasts.

In addition, this can be every difficult when we are a new trader, as in this case. Partner B decides that as a cautious trader the forecast will be on the low side to reflect this view. Given the amount of capital being invested and the probable size of each trade, it would seem likely that to expect a 10% return over the year may be a little optimistic, but that 7.5% may be achievable. At this stage in the trading cycle B has no idea how this will break down over a monthly basis, so decides to simply divide this into a monthly target. It is also difficult to measure as open positions may not be included. Partner B also decides to set a target for a number of trades on the month as this may give an indication of improving confidence.


My Objective


My Strategy


Stock Selection



Trading Rules



Money Management



Trading Targets

I feel that a return of 7.5% on my trading capital should be achievable in the first year. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of 63 USD. This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of 63 USD per month in the first twelve months, or a total of 750 USD in the year.2. A monthly target for the number of trades starting with 2 in month one, then doubling for the first 3 months to an average of 10-12 trades per month.

Finally, being a very disciplined person Partner B realises that part of running a business is also about keeping meticulous records. B has been told that keeping a daily trading diary is important so this is one of the rules. This can be written in the evening. One of the issues that has been concerning B has been how to place trades during the day whilst still at work. This is not a major issue as trades can be placed on line during lunch breaks, or alternatively orders left with the broker to open and close trades at certain prices. B draws up a list of records to be kept and includes them in the plan as a key part of the plan.


My Objective


My Strategy


Stock Selection



Trading Rules



Money Management



Trading Targets

I feel that a return of 7.5% on my trading capital should be achievable in the first year after costs. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of 63 USD. This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of 63 USD per month in the first twelve months, or a total of 750 USD in the year after trading costs have been deducted.2. A monthly target for the number of trades starting with 2 in month one, then doubling for the first 3 months to an average of 10-12 trades per month.

Trading Records

1. A trading diary to be kept every day2. A manual record of each trade to be kept including the following: Stock Quantity bought or sold Price bought or sold Position of stop loss Time trade opened Time trade closed Profit or loss on the trade Cost of the trade3. A daily balance of the overall account position, including cash in the account and open positions value4. A weekly summary of the total capital at risk5. A monthly P/L summary of closed positions

Partner B now has a completed an online stock trading plan which is shown above. This will be invaluable to a new trader. It will stop any impulse trades, ensure trades are the correct size, and above all ensure that trading capital is preserved so that in the worst case, B will only lose 2000 USD.

Whilst this is a very simple plan, I hope it shows the process required in order to wrote one - a little thought is all that is required, but you would be

amazed how many traders don't have one. Remember the trading plan can be as simple as you like - even simpler than that shown above, but please have one.

Forex Trading Plan ExampleForex Trading Plan: I hope that the first example of writing a trading plan

has given you a better idea of how and where to start. If you keep in mind all the time that it is much the same as writing a business plan for a new business, then you won't be far away from a good online trading plan. Now if we go back to our example and look at the reverse case, what happens if partner A decides to give up work and partner B will carry on working. Does the trading plan change, and if so how. Let's take a look and see what happens. I will use the same approach and build the plan as we go through the various decision making processes.

Trading Plans - Partner AThe same scenario applies as before, but this time the couple decide that it may be better for A to try and develop an alternative income stream which will help supplement the household income, once they start a family. A's personality is much less risk averse, and feels that something more adventurous may be appropriate. A is also aware of B's attitude to risk and money, and is conscious that they do not want to cause undue stress for their partner. With no online trading experience A feels that perhaps a low investment start up would be more appropriate, but is quite happy to consider a higher risk market. A is happy to trade in higher risk markets, and if the level of investment is low then this should not cause B too much worry since the amount of initial trading capital will be small. The strategy of the trading plan therefore remains much the same as before with only a minor change to the wording on the markets.

My Online Trading Plan - Partner A


In the next five years I plan to start a family. In order to help plan for my loss of salary, I have decided to begin trading in relatively high risk markets to develop a small, but growing income stream which will be secondary at present, but which will be a replacement for part of my salary when I do leave my job. I will continue to keep working full time at present. My trading analysis and decisions will be done in the evenings and weekends.

Following discussion with colleagues and further analysis on the internet and from background reading, A believes that forex trading offers an opportunity for starting with a small amount of trading capital, yet which offers the opportunity to trade in a leveraged market with both higher risk and higher rewards. A discusses the plan with B, and they agree that 1000 USD is worth risking in the new business, and take the view that if they lost this amount in the learning process they would both be able to sleep at night. A is also aware that this is a leveraged market and therefore much higher risk and one in which both sides of the market can be traded which A feels is important. Forex trading also offers higher rewards for lower start up capital and being a market that is open 24 hours a day means that A is able to trade in the evenings as well as have trades open during the day. A is now able to write the strategy for the trading plan.

My Online Forex Trading Plan - Partner A



My Strategy

I plan to start my trading with a cash sum of 1,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in currency using an online forex broker and will be trading both long and short.

Now that A has an objective and strategy, as before we can start to add some definition to the plan and some forex trading rules. Firstly, A decides that in order to avoid any very high risk pairs that only the major pairs will be considered for forex trading. These will be defined in the plan. A then has to decide on the online trading style, and having read several books on how others trade forex, feels that a technical approach will be best suited for the plan. A has also read about scalping traders versus longer term swing traders, and feels that a longer term trend trading approach would be suited give the lack of experience. Having looked at all the chart timescales available, A feels that using the hourly, daily and weekly charts would make most sense for a long term trade approach, and using candle patterns, support and resistance levels, and simple moving averages to identify possible turning points and trends.

A has also read about the option for new traders to use a demo account. However A feels that this is counterproductive as it is not real money. A has also come across some forex brokers who offer a mini-account which is real trading money, but with very small trading stakes. A decides that this is probably the best approach, as it is real money at risk, but only very small amounts which will help with the learning experience without putting to much capital at risk on each trade. A decides to trade only one contract maximum per open trade which will equate to 10 cents per 1 pip movement.




My Strategy

I plan to start my trading with a cash sum of 1,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in currency using an on line FX broker and will be trading both long and short. Currency Selection

I will only trade the the major currency pairs using a mini account as follows :

1. GBP/USD2. EUR/USD3. EUR/GBP4. USD/CHF5. USD/JPY6. GBP/JPY7. EUR/JPY8. GBP/CHF9. AUD/USD10. USD/CAD11. NZD/JPY12. AUD/GBP

Trades will be selected using a technical approachTrades will be selected using hourly, daily and weekly chartsTrades will be selected using candle analysis, support and resistance levels, and simple moving averages.

Forex Trading Rules


1. Every trade that I open will have a stop loss in place2. I will always place the stop loss at the same time as my trade3. I will never move my stop loss down.4. Maximum trade size to be one contract which is 1/10th normal size

The next stage of the plan is to define the capital and money management rules which are similar to those for stocks. In this case A decides to risk only 0.25% trading capital per trade which means that each trade can lose 25 USD so the stop loss will be set accordingly. As this is a mini account with each pip representing 10 cents of price movement then each stop loss will be set at 250 pips below the market price, which is a nice wide stop for a long term trade. This seems to make sense to A. A also feels that in terms of an exit point as the risk is 25 USD then the reward should be at least twice this amount. Finally A needs to decide on the maximum number of trades open at any one time. As before A feels that 20% of capital at risk should be the maximum which is 200 USD, so that this equates to a maximum of 8 trades. A is now able to write the next part of the plan.




My Strategy

I plan to start my trading with a cash sum of 1,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in currency using an on line FX broker and will be trading both long and short.

Currency Selection




Trading Rules



Money Management

My money management rules will be dictated by the following rules.

1. The maximum loss per trade to be 0.25% of capital = 25 USD2. The maximum number of open trades at one time to be 83. Stop loss to be set at a 250 pips below market price

Finally A decides to set some targets for the business in the first twelve months, and also to keep some records. B agrees to help with the record keeping which is not one of A's strengths! As a target A feels that something quite small would be meaningful as the trades are on the mini account and the account can always be upgraded at a later stage with experience. A decides that in percentage terms a return of 10% should be achievable which equates to approximately 8USD per month - a tiny amount, but if this is achieved it means that there are more winning trades than losing trades, and the account can be upgraded to a regular account where targets will be factored up by 10. This also means that A is taking 83 pips profit per month which would be an excellent start.




My Strategy

I plan to start my trading with a cash sum of 1,000 USD. If during the course of my initial trading, I exceed my targets then I will consider adding further funds in due course. I propose to trade in currency using an on line FX broker and will be trading both long and short.

Currency Selection




Trading Rules



Money Management


1. The maximum loss per trade to be 0.25% of capital = 25 USD2. The maximum number of open trades at one time to be 83. Stop loss to be set at a 250 pips below market price

Trading Targets

I feel that a return of 10% on my trading capital should be achievable in the first year after costs. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of 8.33 USD. This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of 8.33 USD per month in the first twelve months, or a total of 100 USD in the year. This equates to 1000 pips of profit in the year. On a full account this would equate to 1000 USD of profit trading single contracts.

Trading Records

1. A trading diary to be kept every day2. A manual record of each trade to be kept including the following:

Currency Pair Price bought or sold Position of stop loss Time trade opened Time trade closed Profit or loss on the trade 3. A daily balance of the overall account position, including cash in the account and open positions value4. A weekly summary of the total capital at risk5. A monthly P/L summary of closed trades

Partner A has now written a simple online forex trading plan for currency trading as a novice trader.

Trading Plan Spread BettingTrading Plan - Spread Betting: Hopefully the last few pages have shown

you how to develop an online trading plan for stock and forex trading. Now it would be possible to write many, many plans for different scenarios, but I hope that it has shown you the type of 'internal conversation' you must have with yourself in order to arrive at the overall plan. The template I have laid out is only my own idea, it is not cast in stone, but if you would like to use it for your own plan, please feel free to use it. Now rather than set more fictitious, nameless and genderless people, I feel that this should have made the point in the overall approach, so I propose to present two more trading plans and to just go through the main points. The first of these is a spread-betting trading plan and the second is for US options.

Online Trading Plan - Spread Betting

My Spread Betting Trading Plan


I have insufficient capital to trade in stocks and shares, but would like to try my hand at trading, and see if I can make some money as a supplement to my current income. I know that trading is risky but I would like to try anyway. I do not have any plans to change my job or give up work, but I would like to learn a new skill, and it would be nice to know that I have experience of something else if required. I am very nervous but determined to give it a go as I will always regret never having tried.

My Strategy

I plan to start my trading with a cash sum of 2000 GBP which I have saved in the last few years. I have read many articles on spread betting and whilst I understand that it can be very risky, I can trade in very small amounts, so I do not need to take very big risks. In addition all the spread betting companies offer free training courses, and demo accounts for me to learn. I will not start until I have been on a training course, but will start trading in a live account but with using the smallest trade size possible. I propose to start by trading UK FTSE 350 stocks only, and by using a fundamental approach to share selection, based on PE ratios and analysis of the markets, management and accounts of the company.

Financial Instruments

I will only trade FTSE 350 UK shares

Trading Rules

I will have the following trading rules which will be as follows :

1. Every trade that I open will have a basic stop loss in place2. I will always place the stop loss at the same time as my trade3. I will never move my stop loss down.4. For the first 6 months all my trades will be using the minimum amount possible - 50p per 1 p movement in the share price5. I will trade these shares both long and short6. I will trade the nearest contract periods7. I will roll contracts forward if required

Money Management


1. The maximum loss per trade to be 0.5% = 10 GBP2. Stop loss to be set at 20p below market price3. I will not trade on margin4. I will only have a maximum of 2o trades open at the same time which represents 10% of my trading capital at risk in total

Trading Targets

I feel that a return of 10% on my trading capital should be achievable in the first year after costs. As I have no previous experience or track record I have divided this into 12 equal amounts giving a monthly target of £16.66 . This may not seem very much, but if I can repeat this consistently I will be doing better then most and can always factor the amounts up as my experience grows. I would be happy of this target is achieved in less than 12 months or alternatively all in the last month!

1. A target of £16.66 per month in the first twelve months, or a total of £200 in the year.

Trading Records

1. A trading diary to be kept every day2. A manual record of each trade to be kept including the following:

Share details Price bought or sold Position of stop loss Time trade opened Time trade closed Profit or loss on the trade Contract expiry date 3. A daily balance of the overall account position, including cash in the account and open positions value4. A weekly summary of the total capital at risk5. A monthly P/L summary of closed trades

OK - one more as I'm sure you're getting the hang of this now and how to develop your online trading plan - I hope so anyway!!

Documents

Trading Plan PDF