A trading plan is a roadmap for how to buy or sell, and no trades should be placed without a well-researched method. The plan is written down and followed. It is not altered unless it is found not to work (make money) or the trader finds a way to grow it.
In this article, we were given a lot to think about when creating your trading plan or improving your trading strategy.
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The Components of Your Trading Plan:
A business strategy has set components; so does a trading system. There are three major component s within any trading plan and they are entry, exits, and money management rules; here is a quick summary:
1. Tested Entry Rules
Entry rules are a precise set of dictates that an instrument must pass before you enter a trade. Entry rules should be simple, direct, and human knowledge.
2. Confidential Money Management Rules
Perhaps the most important and least addressed aspect of trading is the ability to manage risk. A profitable trader is one who can manage the risks associated with trading. A trading method should define exactly how much money you are willing to lose on any given trade.
3. Tested Exits Rules
Entering a share is all to no avail if you do not know when to exit a position. Having rules that define your exit is equally important as one that defines your entry.
When you take time to write down your trading rules, you transform your mental reality to physical reality. You cannot fudge the numbers, or avoid taking responsibility.
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