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Tuesday, December 4, 2012

Why Do you Need a Trading Plan?


A trading plan will make trading simpler than it would be if you traded without one.

Think of when you use a GPS device. You enter where you want to go. It then figures out where you currently are and then shows you how to get to where you want to go. You're able to constantly check on your GPS to see if you're still on the right track. When you make a wrong turn, it knows to make adjustments, and it points you back in the right direction.


A trading plan is your trading GPS. It will show you where you currently are as a trader and help you get to your destination: consistent profitability.
Traveling without a GPS wouldn't be smart idea. You wouldn't know how to get to your destination and it's highly likely that you'll drive around lost like a chicken with its head chopped off. You're probably thinking that one could use an ancient object called "maps" instead, but we have no clue what that is. Please don't make such absurd suggestions again.

Trading without a trading plan would be the same thing as driving without a GPS--a bad idea. You're trying to get to this Promised Land called "Consistent Profits," but since you have no way of knowing whether you're headed in the right direction, you'll most likely end up blowing out your account.

With a trading plan, you're able to know if you're headed in the right direction. You'll have a framework to measure your trading performance. And just like a GPS, you're able to monitor this continually.

This allows you trade with less emotion and stress.

Without a trading plan, this would be nearly impossible. Instead, you'd be a "cowboy trader", shooting from the hip, trading by the seat of your pants, relying on your gut, guesses or signals from strangers. That ain't trading - that's gambling!

Whenever you trade, you'll probably end up a nervous, emotional wreck, crying yourself to sleep as your rollercoaster account balance grinds at your psyche. (Okay pretty drastic, but we think you get the picture).
Just as you use a GPS to both figure out the route to be taken and to judge the progress that has been made, your trading plan defines how you'll become consistently profitable and tells you if you're on track.

Most importantly, if you suck at trading (and you will in the beginning), you will know it is down to one of only two reasons: either there's a problem in your trading plan or you are not sticking to your trading plan.

If you're trading without a plan, it's impossible to know what you're doing right from wrong. You have no way to evaluate your results, so you'll never know how to stop sucking.

We can't emphasize this enough..."if you fail to plan, then you've already planned to fail."

Obviously, a trading plan doesn't guarantee success, but a good plan that is followed will help you stay in the forex game longer than traders who don't having a trading plan.
SURVIVAL is better than failure and it should be your first goal as a newbie trader.

Remember, 90% of new traders don't make it. You want to be part of that special "10%" that does make it.

You're probably thinking, "Ba humbug! Trading plan, schmading plan. I can be part of that 10% without a stinkin' trading plan!"

It may be tempting to trade by the seat of your pants, but if you don't develop clearly defined trading plans and be disciplined enough to follow them consistently, you'll have much difficulty making consistent money as a trader.

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