Cash Flow Trader Blog: Trading Plans

Ever since the marketplace was first created, investors have been trying to crack the code and discover the secret to making money via trading, which is not the easiest thing to do. After all, the market is a place of endless opportunities, choices, and potential outcomes. Even for the most experienced and diligent traders, there are a plethora of unknowns. Each trade is unique, and many of the factors we deal with as active traders are simply out of our control. Regardless of how much is out of our hands, there is one thing we can always control: our trading plans.

Why Plan for an Unpredictable Future Market?

It is funny many beginning traders fall into the same trap that I have seen beginning entrepreneurs fall into again and again. There seems to be an expectation that developing a plan; whether it is a business plan for entrepreneurs, or in our case, a trading plan for traders, it is a surefire path to success. But in trading and business, there is one thing I know to be true: even the best-laid plans can and usually do crumble in the face of chaos or uncertainty. However, let me be crystal clear: the plan itself is nearly worthless, but the planning process, the thinking and strategizing we must do to create a plan, is invaluable.

Planning is an Ongoing Habit.

Planning should be a continuous process and not just a task on your to-do list. Think about all the traders and business owners who sat down in December 2019 to author their plan for the new year. I promise you; not a single person thought, “This year, I’m going to add a new section called ‘My Pandemic Plan.’” Nobody saw it coming.

Experiences like the 2020 pandemic cause some to believe the mistaken idea that creating a plan is a waste of time. After all, everything can change in a moment. So, why plan? Well, here is why. Because even though all our plans were shot by the end of 2020’s first quarter, the activities and awareness required to create those plans largely determined who thrived and who went under.

Indeed, even the best-laid plans cannot account for all of the possible unknowns. However, the more chaotic the environment, the more critical a plan becomes. The plan is your guide, and the habits of planning are the seeds of your success.

​What ​​to Ask ​When Crafting ​Your Trading Plan.

Creating a trading plan from scratch can be intimidating, but it should be fun. The process starts with clarifying where you are with your trading career, where you want to be, and what kind of resources you realistically have to work with. Here are a few questions to ask yourself to get the ball rolling.

Mindset

  • • Why do I want to trade? What’s my reason beyond just making extra money?
  • • What is my vision of excellence? Where am I dabbling?
  • • What must I believe/ what mindset do I need to develop to become a successful trader?

Numbers

  • • How much capital do I have to trade?
  • • How many hours do I plan to trade weekly, and how will I allocate them between research, analysis, training, and execution?
  • • What time frame should I trade?

Skills & Execution

  • • What vehicle will I use? Stocks, options, FOREX, etc.
  • • What strategy will I use? How have I tested it?
  • • Has my execution been consistent?

​In Closing

Even though we have established that the trading plan itself is not the most important thing here, it’s still crucial for traders to get their trading plans out of their heads and onto a page. When we keep our plans in our heads, we are forced to live amongst all our emotions and biases. We might go through the work of answering all the questions above and thinking strategically about our plans. Still, if we are continually tweaking and editing those plans through the lens of our day-to-day emotions, they become entirely worthless.

After all, your plan should exist as a document that you could hand to someone and have it explain precisely how you interact with the market. It should be clear, thorough, and unique to you. Pulling together an effective trading plan can take time, but I promise if you put in the effort to create a solid plan now, it will make you a better trader in the days ahead.