Cash Flow Trader Blog: Three Ways a Trading Plan Can Improve Your Trading

A trading plan is your compass as they help you navigate the world of candlestick charts and provide guidance on any potential trade. They are an essential topic around Tradesmart, and we strongly recommend all traders use one. And to back up that recommendation, here are three ways in which we believe a trading plan can improve your trading.

#1: Trading Plans Keep Our Emotions Out of the Equation

One of the fastest ways to drain your trading account is to make emotional decisions rather than strategy-based decisions. Having a trading plan empowers traders to take their emotions entirely out of the equation and make decisions according to their plan. Now, I know what you might be thinking: “But doing the same thing over and over again sounds so boring!” Yes, it is. After all, smart trading should be a little boring. But what isn’t boring is honing a skill and developing the mindset needed to be successful as a trader.

#2: Trading Plans Help Us Clearly Measure Our Results

There is an old saying, “that which is measured can be improved.” Trading plans provide you with the core criteria you need to measure your wins and losses effectively. Simply put, comparing your trading results to the objectives and strategies present in your trading plan can help you determine whether you are hitting your income goals or not.

#3: Trading Plans Provide Important Insights

Remember doing science experiments in school? The first step was to come up with a hypothesis. You then tested your hypothesis, measured the results, and confirmed or denied the original hypothesis. A trading plan is a bit like that. You develop your plan, execute it flawlessly, measure your results, and see whether any changes are needed. When you have all this information, you can more easily identify potential areas of weakness and fix them before they drain your account.

Still not convinced using a trading plan is right for you. Here are a few more points to consider that a trading plan can highlight or provide to your trading.

Defined Purpose

An excellent trading plan includes very clear objectives beyond a monetary goal. This needs to be something that will keep you motivated and inspire you to make wise decisions instead of emotional ones. Not sure what we mean? Check out Simon Sinek’s book, Start with Why. It might sound a little cheesy, but we promise it works!

​A Clear Strategy

Even within our team, all our Pro Traders use different strategies. Our CEO, Josh, trades momentum and trends and loves to trade retracements that have completed. Alphonso uses six different setups in gap trading. Stephen trades using volume and looks for precise setups like “the gem.” You might be an options trader using covered calls or naked puts, or your strategy maybe something completely different. The point is, you need to find one strategy that works for you, become a master at it, and repeat it over and over.

Specific Objectives

When creating your trading plan objectives, it’s essential to make sure your goals are specific, measurable, attainable, realistic, and time-sensitive (SMART). An easy way to set better goals is to determine your end goal, then break it into small, realistic chunks. For example, SMART objectives might sound something like:

  • • “I plan to grow my account from $50k to $60k in 12 weeks using my tested & proven strategy so that I can pay off my remaining mortgage and free up $1k a month in debt services.”
  • • “I plan to achieve a 75% win-loss ratio and a 2R average return on the next 30 trades I place over 90 days.
  • • “I plan to achieve $500 in weekly net profit by daily checking Deep Sky for a qualified trade idea, and consistently executing my momentum strategy while avoiding any self-inflicted errors.”

​Trading Laws

What must be on the chart and what can’t be on the chart? What will you always do? What will you never do? Trading Laws help us set clear, non-negotiable boundaries for what we are and aren’t willing to accept in a trade.

​Trading Journal

A trading journal is non-negotiable. Our journals keep us grounded in reality and hold us accountable. They help us track our progress, strengths, and weaknesses over time, which is crucial to developing our trading skills. Not sure what a Trading Journal should look like? You can download our template here and adjust it as you see fit.

​Risk Management System

Risk management is the most crucial part of your trading plan. Every trade you make must have an entry, target, and stop set before entering the trade. Here at TSU, we teach the R’s trading system for risk management. Want to learn more about it? Check out our ​Beyond FOSO: Risky Business blog and see if the Risky Business class is suitable for you.

​In Closing

The benefits of using a trading journal outweigh any potential downside, as a journal will keep you accountable to your goals and let you measure your success. So start using one today and get your trading on the right path!