What’s the Key to Following Your Trade Plan?

So many traders who’ve yet to find their trading consistency, struggle to trade to a plan. In fact it could well be that they don’t even have a trade plan. But let me tell now – if you can find the key to following your trade plan and stick with it, trading consistency and trading success become far more attainable.

So many traders who’ve yet to find their trading consistency, struggle to trade to a plan. In fact it could well be that they don’t even have a trade plan. But let me tell now – if you can find the key to following your trade plan and stick with it, trading consistency and trading success become far more attainable.

Why follow a trade plan?

The problem for some traders is that they don’t really understand the importance of a plan. There are at least three really persuasive reasons as to why you should be doing this:

  • Trading emotions and trying to figure out the market when you are actually trading, is much more difficult than predefining your trades and simply executing them when they come along.
  • By following a trade plan, you are much better able to define your level of risk.
  • You give yourself a point of reference upon which you can develop your trading. By recording and learning about your trades, you can refine them – if they’re all figured out on the fly, this becomes a far more difficult task.

Okay, I get it!

So in fairness, a lot of traders know that following a great trade plan is really important. It’s just that somehow they can’t seem to get it together. It’s not that they don’t have enough trading experience or knowledge, it’s more that something just hasn’t “clicked” – and it’s this “click” that will see you start to make “the trading turn”. So what’s the key to following your trade plan? Well, there are a few crucial parts to the machine.

The key to following your trade plan

  • It must not be an ambiguous trade plan

Listen, I’m all for simplicity. Let’s face it – there’s only a certain capacity for information and rules that any one person can realistically follow when markets are moving fast. But any trade plan needs to be thorough enough to ensure that you’ve at least covered the basics. You should know your risk per trade for example. You should also know what you trade; what size you trade; when you trade; when you don’t trade; what a setup is; how you manage your trades etc. You should know all the specific detail about your trading method. If you know what you should be doing, it’s much easier to see the things that don’t fall into this category.

  • You don’t fully believe in it

The next issue is when a trader has a plan but doesn’t fully believe in it. Things usually start well, but as the trader becomes more emotionally embroiled, the distrust in their plan sees them begin to violate their own rules.

There’s this gaping chasm between understanding concepts in principle and believing them to your very core – living by them. So you need to back-test your plan (even manually, tick by tick) and you need to build trust in it by evaluating it over a number of trades.

  • You are not fully focused

So much is always going on in our lives and the challenge of remaining focused particularly for a retail trader who trades from home, is a big one. Even if we discount the family interrupting, the various other things that we need to do at home, the vast amount of information constantly streaming to us through the internet and whatever else, there is a huge amount of potential distraction from the markets and in our charts.

By making sure that you know exactly what you are looking for, it’s far easier to remain focused from one day to the next.

  • You place too much importance on single trades

You can’t hide from emotions and the psychology of trading. Even if right now you believe that this is not an especially import aspect to your trading, believe me when I say that one day you will.

There are many issues at play here that without a doubt can impact on your ability to follow your trade plan. But specifically, much of these have their roots in placing too much importance on a single trade. Not wanting to take a loss, cutting your winners short or the fear of missing out all stem from this mindset. But the fact is, some trades will be winners and some will be losers, so you have to let the trade fully play out.

I know that there’s always the eagerness to engage the market and that actual trading is viewed by some as the best way to learn, but truly the best way is to theorize, observe, interact, review – take systematic approach. Call it the “scientific method” for trading. The only way to do this is to create and follow a plan.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.