The Trading Plan is a necessary aspect which a Beginner in trading should understand very clearly. It can create a strong base for the Beginner to enter this trading field. In this article, tradingcritique.com will help you to create your first trading Plan in a very simplified manner. You must know how to create a Trading Plan.
To have a better understandability of this article we recommend you to read about Trading and Financial markets.
What is a Trading Plan?
A Trading Plan is a process you define yourself on how to trade. In simple terms, the Trading Plan means a Plan you make to execute your trade. It gives you a clear path on how you should execute your trade. With the trade Plan, you know the flow of how your trade should happen. You do your trading research in trade Plan more importantly.
Without the trade Plan, you will be so confused about what you are doing when you execute your trade. A confused state of mind will always lead to losses where you lose money. A perfect and clear trade Plan can help you to increase your profits and make you a successful trader.
There are many factors you should consider in your trading Plan. But as a beginner in trading, you may not be aware of many aspects which you should consider in your trade Plan. Some factors in the Trading Plan can be simple but they make the essential part of every trade Plan, E.g., Time you can spend for trading.
As a Beginner, entering into trading without any knowledge can lead to unsuccessful trades and leading to losses. This may eventually decrease your confidence to trade. So, it is important that you educate yourself about the basics of trading before entering a live trade. Trading Critique experts recommend you to read the article on Trading: All you need to know about, to get yourself educated about the basics of trading. A Trading Plan is also an important part of the basics in trading. Now let us see how to create your first Trading Plan.
Building your Trading Plan made easy
Trading Critique gives you an easy way to create your Trading Plan. The easy way is to get answers for a set of 6 questions after which your basic Trading Plan is complete. These questions give a flow on how to create your Trading Plan. Follow the Trade Plan in the same order given, as it is a complete process. The answers you get is your Trading Plan.
The answers which you should get for your Trading Plan are on your,
- Investment
- Time
- Financial market
- Broker platform/Trading platform
- Analysis
- Trading Strategy
When you enter into the Trading field as a Beginner, getting yourself educated by finding answers for these 6 questions provided in here will give you the confidence to execute your trade.
When you find answers to these questions, you will learn a lot about trading. The tradingcritique.com also educates you on all the aspects of trading. Also, check the other articles on trading.
The 6 questions which you should answer to create your Trading Plan is mentioned below. The information and importance of answering these questions are also explained. Follow this as a basic guide to build your first Trading Plan. Practice your trade, once you become an expert in trading, you can create your customized Trading Plan by including the other aspects you think are important.
1. How much money can you Invest in trading?
When you enter into trading it is important to know the answer to this main question. Answering this question will lead to other solutions you need. So, it is the first and foremost question for which you should have a clear answer.
You may be a person having another profession or you decide to be a full-time trader. For trading, the basic need is an investment.
Invest the money which you have in your savings as a Retail trader. Invest only a small percentage of money in your trading which you can afford if you lose all of it. Investing the money which you get through debt in trading can make you fall in a trap.
As you are trading for the first time, you may not have the practice in trading and there are high chances to lose more. So, investing all your savings in is definitely not a good choice.
2. How much Time can you spend on trading?
Money alone is not an important factor for investment in trading. The Time you invest in trading is also another important factor. Decision making on the time you can spend on trading plays a major role in deciding your trading style. According to the time you can invest, there are different trading styles. The four main types of trading styles are,
To know more about the Trading style read our article on Trading Styles: Based on time you can spend on trading.
You can choose to follow any one of these trading styles or combine two or more trading styles. You can decide which suits you the best by experimenting.
3. Which Financial market to invest or trade?
After deciding how much to invest and what is your trading style, the next thing to decide on is which Financial market to trade. Such as, whether to trade in the Capital market, Money market, Forex market, Commodity market or Cryptocurrency market.
As a beginner, you should choose one market and master in that before exploring others. For example, if you want to trade in the share market, start with it, know completely about shares and try making profits. You can apply this knowledge you had with stock trading with other markets as well. The experience and practice you gain will help you to learn to trade -in new Financial markets easily.
4. How to Choose your Broker platform/Trading platform?
Once you decide on which Financial market to trade, you should choose your Trading platform. This trading platform can be a Centralized Exchange or a Broker Platform or a Dealer Platform or a Broker-Dealer Platform or Over-The-Counter platform. It can also just be a person such as the Broker/Dealer/Broker-Dealer. They are the ways through which you can Execute your trade.
Nowadays most of the Trading platforms execute these overlapping functions. So, it is more important to select them more cautiously with good research about them such as whether they are regulated or not. There are many trading platforms available, now mostly all are automated.
This part of your Trading Plan can be made easy for you by tradingcritique.com as we provide reviews about each trading platforms available in the market with regulations. You can select one or more platforms according to your Investment Plan.
5. Do you know to do Analysis for your trading?
The Analysis is where you know about the past, present, and predict the future of financial assets that you are going to do trading using some mathematical calculations and procedures. Analysis is a technically important factor which should be a part of your Trading Plan and should be developed as a skill as you become an advanced trader.
There are two main types of analysis used in trading namely Fundamental analysis and Technical analysis. Both the analyses are important in the Trading Plan which helps us in understanding the different aspects of the financial asset.
Depending on the type of trading such as Stock trading, Forex trading, Commodity trading, Cryptocurrency Trading and Derivative trading analysis also differs. Having a piece of proper knowledge and awareness about how to do your analysis for your trading in different Financial markets and Financial assets will help you a lot to multiply your profits. An Analysis is a more rational and calculative way to proceed with your trading and making it profitable. Now let us see in detail on how to do Fundamental and Technical analysis for your Trading Plan.
How to do Fundamental analysis?
Fundamental analysis is the basic analysis which does not require much mathematical calculations. It is more a practical and easy kind of analysis which a normal person who is literate and educated can analyse without any specialized knowledge and technicalities as that of the Technical analysis.
In your Trading Plan, after you select the Financial market and Financial asset you are going to trade in, you should start with the Fundamental analysis. This analysis is where you know the Fundamentals of the Financial asset which gives you a broad picture of Financial assets’ history i.e., the past and present should be analysed. This helps you to predict the future of the financial asset.
Some simple things that you should follow in your Fundamental analysis are,
1) To follow the NEWS or the articles about the Financial asset in the business newspapers you read or on the internet or in the social networking sites.
2) You should know the history of how your Financial assets have performed from the past to the present.
Fundamental analysis is mostly used in Position trading/Investing and Swing trading where you hold the financial asset for a long time. In these types of trading, you do not profit from the small price movements, as it happens in scalping. Scalping does not require any Fundamental analysis and it is completely based on Technical analysis. You need not bother about minute price movements of the market in Fundamental analysis.
The method you follow in Fundamental analysis may differ for different Financial markets and Financial assets.
A good example of differentiation in the procedure for Fundamental analysis is,
In the Stock market, before buying a stock from the company, you should completely know about the company like the business they deal with, Board members, Management, motto, its performance over the years, credibility, accountability, assets, liabilities, company’s cash flow statements, balance sheets, income statements. Fundamental analysis gained importance from Stock trading as it has many criteria to be analysed.
If you consider the decentralized cryptocurrency market, the detailed Fundamental analysis such that of a stock market is not required. You just follow the price fluctuations of the Cryptocurrency you own.
Some Financial instruments may not require Fundamental analysis at all, such as Contract-For-Difference (CFD).
How to do Technical analysis?
As the name specifies Technical analysis involves a lot of mathematical calculations, patterns and trends which are used to predict the future of the financial assets’ price movements. Even small changes that happen in the price of the financial assets can be tracked using technical analysis.
Technical analysis should be in the checklist of the Trading Plan of the Scalpers and Day traders where they get profits from the small changes that happen in the price movements.
The concept that is behind the technical analysis can be explained using a well-known proverb,
History repeats itself.
This is one of the famous proverbs in the world and this explains how the technical analysis works. A famous belief in Technical analysis is that anything that happened in the past of the financial asset is likely to happen in the future also. This is predicted using some technical procedures and calculations, such as using the Chart patterns and Trends.
Charts play a main role in Technical analysis. Charts show the price movements of the Financial assets over the years using which you do your Technical analysis. You can find these charts in Stock Exchanges, Broker-Dealer platforms, in websites such as Yahoo Finance and investing.com. The information on price movements of the Financial assets is present sometimes from the date it was issued.
Technical analysis is a very vast subject, and it takes time to master it. As you practice your trading consistently, you will learn it fast.
As a Beginner in trading, you should at least know about the basics of Fundamental and Technical analysis.
The Trading Plan of using analysis in Trading is to,
Learn step-by-step and consistently to build a strong base of knowledge which will help you in a long run in trading.
6. How to make your own Trading Strategy?
Now we are in the last part of your basic Trade Plan. A Beginner would think that it is difficult to have a trading strategy now itself. You may be in a confusion that the strategies are for the ones who are experienced in trading. But that is not true. You can have a trading strategy as a beginner. They should be simple and achievable. When you get experienced in trading, you can upgrade your trading strategies to more technicalities.
Trading strategies are a set of rules which you consider before, during and after the execution of your trade. Even the small minute aspects of trading are considered in the trading strategy.
Trading Plan given here is the macro aspect of your trading. In Trading strategy, you consider even the micro aspects which are important to make you a profitable trader. As a Beginner, you need to have a vision of creating a basic trading strategy.
Some examples of basic trading strategy are,
- I would follow the trade Plan as mentioned in this article.
- I would follow each step mentioned properly in my Trading strategy before I enter any of my trade.
- I will practice my trade regularly.
- I will be disciplined in trading.
- I will spend three hours daily to learn, update and practice trading.
- I will give importance to Technical analysis in my trading.
Even some simple procedures essential for the trading activity can be considered as a Trading strategy.
The strategy is something which you make for yourself, the goals which you set for yourself. You should be clear in that vision and execute your trade according to that. That is what trading strategy means. This can be customized for each and every trader. You should develop your strategies according to your needs and requirements.
When the word Trading strategy comes, one thing which comes into my mind is social trading. Social trading is a very new concept where you can copy the strategy of other traders. The famous Broker platform which provides social trading is etoro.com. Yes, as a Beginner you can use social trading, but as you start trading you will itself get a feel to create your own strategy. You will learn from others and create your strategy. This will give you a good experience to turn yourself into a profitable trader.
If you want to know about what are the Trading strategies which you should know without missing as a Beginner, you should read our article on Trading Strategy for Beginners: 8 Important strategies you should follow.
Importance of having a trading Plan
It is a need that you should have a Trading Plan. If you don’t have a Trading Plan, you will be like so confused and you won’t have a path to execute your trade. So, you must have your Trading Plan.
When you indulge in trading without a Trade Plan, you will feel like, you are lost in the trading field.
Trading Plan is an important part of the education you should get for trading. It should be in your checklist for the preparation which you do for the trading. All the steps which are mentioned above in the Trading Plan are the most important basic steps which are required when you enter into a new financial market.
We at tradincritique.com help you in creating the education and awareness about the Trading Plan, so that you won’t feel lost in the trading field. If you have any doubts about the Trading Plan, you can contact us personally, and a mentor will educate you about all aspects of trading for free. To personally connect with us please give your details here, we will contact you back.
In a Nutshell
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Reference
Book name: Smart Trading Plans: A Step-by-step guide to developing a business plan for trading the markets Author: Justine Pollard Publication: Wiley
