Trade Planning and Money Management

Trading is a business, so you have to treat it like a business if you want to succeed at it. If you don’t follow a trading plan for your specific strategies, you are a disaster waiting to happen. Ask any trader who actually makes on a consistent basis and they will tell you “You can either go in blind and lose your money or you follow the rules follow your plan and you will succeed.”

Each trader should write their own trading plan to go along with their own trading style.

Trade goal setting
How many trades will you average per day? What is your maximum? How many points do you want to strive for per trade?

Personal growth goal
Your personal growth should be to maintain a solid mental and emotional foundation and constantly improve knowledge and skill. The goals could also include both trading and non- trading related books to read. Table 2 is a list of recommended titles on technical analysis and trading.

Financial commitment
Determine the financial commitment you will make to your business which includes account start-up capital. Your financial commitment to your trading account

Time commitment
This is the amount of time you invest in your trading business each day, which for some traders might be just a few hours, five days per week, and for others it could be 14 hours per day, six days per week.

For example:
Trading Analysis will be done on a daily basis. Both the end- of-week and monthly analysis will take place anytime between Friday and Sunday evenings.

Record keeping
It is important to keep a record of all your trades. Keep a daily sheet noting daily P&L and open positions. Closed profit and loss will also be tracked on a weekly and monthly basis.

Trading plan methodologies
A trader must clearly define the entry method and be prepared to respond to all types of market conditions. How to exit the trade, both with a gain or a loss, must be predetermined and clearly defined. The following examples will give an idea for how detailed and specific the plan should be, and you should develop your own plan.

Entry plan for trending environment:

  • Markets to retrace 38-50% off its highs
  • A support at its 20-period exponential moving average
  • A bull / Bear -flag formation
  • On a smaller timeframe, look for a ABC corrective wave to confirm bull flag pattern
  • Test of the lower trend-line of the bull-flag pattern
  • Stochastic to have reached oversold condition of 20 or lower
  • Once the market confirms all this criteria, place a buy order
    at the market
  • Exit at Fibonacci retracement levels.
  • Exits will be as follows: when profitability is more than x pips, seek to take off 50% of my position immediately and move the stop

Examples of exit parameters

  • Exit at a retest of intraday high/low or swing high/low
  • Exit at fixed profit objective in dollars
  • Exit at an objective chart point
  • Exit at a time interval (i.e. four days)
  • Exit at a combination profit time: i.e. first profitable open or second profitable close
  • Don’t exit but just reverse
  • Exit on a range expansion
  • Trail a stop off the low
  • Trail a stop off the high
  • Exit on close
  • Exit if the day’s close is less than a certain percent of the daily range in the direction you are trading

Money Management

This subject is often complicated but you can keep it simple with these simple rules:

Never risk more than 2% on any one trade Never trade more than 5 markets at any one time Stick to these simple rules Never Risk More Than 2% On Any One Trade This means if you have a £10,000 balance you will never risk more than £200 on any one trade. If you are placing a trade and your Stop loss is 50 PIPs away that means you will trade at £4 a PIP. If your Stop loss (which is 50 PIPs away) is hit you will lose a maximum 2% of your balance, £200 (50 PIPs multiplied by £4). Never Trade More Than 5 Markets at Any One Time If you limit your trading to 5 markets at any one time and you “Never risk more than 2% on any one trade” your maximum exposure in the market at any one time will be 10%. This is more than enough for even the most experienced trader. Stick to These Simple Rules

©2022 The Shredded FX Trader 


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