The stock market can feel like a vast ocean with stormy nights. And if you’re going to navigate that and get to your desired destination, you will need guidance and a planned route in mind.
And that will be your trading plan.
A trading plan will give you the guidance on which markets to trade, when to take profits, cut losses, and search for other opportunities.
Why is this important?
A trading plan helps you make logical trade decisions and define the strategies of your ideal trade. Most importantly, it will cut down on mistakes most traders make in the heat of the moment.
Today, you’ll learn how to create a comprehensive trading plan for yourself. You’ll learn the golden rules every trading plan should cover in our 7-step series. This includes:
- Your motivation for trading
- Your amount of time commitment
- Defining your goals
- Your risk-reward ratio
- Your available capital for trading
- Improving your market knowledge
- Starting a trade journal
We’ll start with the first step in creating your perfect trading plan.
Step 1: Define Your Motivation for Trading
Remember in the Ten Commandments of trading that it’s always important to know your why. The same goes for your trading plan.
You have to know your reasons for why you want to trade and how you’ll commit to that. To ensure that you stick with the first step of your trading plan, you must write down your reason why and keep it nearby as a constant reminder.
For example, your motivation for trading can look like this.
“I want to trade so I can create other streams of income apart from my job and get closer to financial security.”
Understand Who You Are
However, wanting to make more money is just not enough as a trader. Part of defining your motivation for trading should include understanding yourself.
You’ll have to reflect on where you are in life and what type of trader you’re going to be. Some of the questions you ask yourself can include:
- Am I in a mentally good place to make trades?
- Do I want to be a full-time trader and become the next Warren Buffet or do I just want extra income on the side?
- Am I willing to learn more about all the factors that affect trading and commit to practicing them?
- What sacrifices will I make to commit to staying motivated?
- How will I respond on days where I don’t feel as motivated?
This list is not exhaustive. These are just a few of the questions you must answer to truly understand and define your motivation for trading.
Because with the time you have left you have to decide the type of person you’re going to be. And successful traders always stay committed to their goals and themselves.
Once you answer these questions, it will show what your strengths are and what you’re missing.
This way you can prepare yourself better for your trading journey ahead.
In the next part of the series, we’ll focus on how much time you’ll commit to your trading plan and how to integrate it with your life for the perfect balance.