Start Your Trading Career With A Sound Trading Plan

If you want to be successful in the market, you should have a proper trading plan.

"Fail to plan and you plan to fail."

This heading may sound glib, but those who are serious about being successful traders should follow these eight words as if they were written in stone. Ask any trader who makes money on a consistent basis and they will tell you, "You have two choices: you can either follow a written plan, or fail."

If you have a written trading or investment plan you are in the minority. Your success won't come immediately, but at least you are in a position to chart and modify your course. By documenting the process, you learn what works and how to avoid repeating costly mistakes.

Whether or not you have a plan now, here are some ideas to help with the process.

Trading is a business, so you have to treat it as such if you want to succeed.

Like the markets, a good trading plan evolves and changes, and should improve over time

A plan should be written, but has to be refined as time goes on. It changes with market conditions and adjusts as the trader's skill level improves. Each trader should write his or her own plan, considering his own personal trading styles and goals. Using someone else's plan does not reflect your trading personality.

What are the components of a good trading plan? Every plan should include the following:

1. Skill assessment - Are you ready to trade? Can you follow your signals without hesitation? Trading in the markets is a battle of give and take.

2. Set risk level – How much of your trading capital should you risk on any one trade? It can range anywhere from around 1% to as much as 5% of your total capital on a given trading day. This will depend on your trading style and risk tolerance. Rule number one is to protect your capital.
   
3. Set goals –Set weekly, monthly and annual profit goals in dollars or as a percentage of your portfolio, and re-assess them regularly.
   
4. Do your homework – Before the market opens, Assess all stocks in your watch list and be prepared to take action if your entry signal or exit signal is met.
   
5. Trade preparation – Check out your major and minor support and resistance levels, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal.

6. Set Entry rules. Entry rules are important, but always wait for confirmation before you actually enter the trade. Don’t chase prices.

7. Set exit rules – Most traders make the mistake of concentrating 90% or more of their efforts in looking for buy signals but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally.
   
   Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, set trailing stop loss targets to protect your profit.

8. Keep excellent records – All good traders are also good record keepers. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, support and resistance levels, and record comments about why you made the trade and lessons learned. Save your trading records so that you can go back and analyze the profit/loss for a particular system.

9. After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so that you can reference them again later.

No one should be trading real money until they have at least 20 to 30 paper trades in real time in real market conditions before risking real money.

Successful paper trading does not guarantee that you will have success when you begin trading real money and emotions come into play. But successful paper trading does give the trader confidence that the system he or she is going to use actually works.

There is no way to guarantee that a trade will make money. The trader's chances are based on his or her skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money.

Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game.
To help you to design your very own trading plan, I suggest you get the following book . It only costs $7 and is well worth the money.

Table of Contents 1: Why do you want to become a trader? 2: Trading psychology 3: Designing a winning trading 4: What is a trading plan 5: The perfect entry 6: Excellent risk management 7: The perfect exit: profit management 8: Choosing your charting software 9: The art of back 10: Analysing your trading system 11: Selecting your broker 12: Where to from here Cl ick Here or on the book cover to receive your 56 page ebook for only $7.00. Instant download

Disclaimer: Any financial product information contained in this newsletter is general information only and has been prepared without considering your objectives, financial situation or needs.

Before making any investment decision you need to consider whether the advice is appropriate for you. We are not licensed financial advisors.

Do you want to obtain an exciting book to help you in your trading?

Please click on The Master Trader An exciting e-book on How to make dollars of profit each day as a skilled day trader, using your own trading system — no matter if the market is up or down! Yes, it is a USA book, but all ideas can be applied to the Australian market. Well worth the purchase price.

Happy Trading,

Eric
http://www.tradingaustralianshares.com