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Develop a Trading Plan

Success in business, life or trading has one very important similarity. A Plan. A plan is essential for success. The top traders in the country all have this one similar trait and it is an absolute. I feel that this confuses new traders who are constantly being told about success in a specific type of trading method.

You may read a book about a method of trading that the author claims makes him money. The one common denomination that the successful traders I know have, is a plan. Let's look at some of the more recognized approaches to the markets.

Trend Trading

Breakout trading

Asset allocation

Momentum trading

Option writing

Option Premium selling

Moving averages

Point and Figure


Cycle trading



Elliot Wave

Pair Trading

Volume analysis

Swing trading



Each of the traders that use these methods have different degrees of success. The key is to have a solid plan and stick to it.

A plan consists of specific set ups, entry points exit points and stop loss points. Position sizing is also critical. Don't use your entire trading capital on a few trades. Any method can have a series of losers and market conditions that may not be ideal for a period of time.

Here is my toolbox for writing a trading plan.

Time Frame - Are you using daily, weekly or intra day data in your trading
Studies - If using studies or indicators, they must be absolute values
Set up - The condition of the stock or index before you trade it
Entry - The specific condition or conditions that now exists to take the trade
Stop Loss - The maximum amount you will lose on any trade
Exit - The conditions that say end this trade, with a profit or a loss
Filter - How you chose which stocks or indexes to trade

I feel that a trader with a plan has a chance to be in the top 5% of all traders. Develop your plan and work your plan!