Why You Need a Trading Plan


In this interview the importance of a trading plan is discussed.

Tom: ‘Well when many traders and get into trading they concentrate on the strategy how they’re going to decide when they’re going to buy and sell, what kind of profit they are going to make and they focus on that. The higher percentages we know from the statistics don’t make it in the trading business and you feel that’s because of their lack of a plan. So explain what you go through when you get someone on the right track.

Stuart: ‘Yes absolutely I think you’ve hit the nail on the head there. I think people are attracted to trading clearly for the money and how much money they can make. Therefore they focus on the first decision they make in the whole trading process and that is when to enter a trade. That is the first thing we need to do and therefore they focus on that. And I think they ignore other things at their peril.

Clearly a complete trading plan is three things and there is nothing new here. There are the three ‘m’s’: the mindset, the money management and the method. So many people focus on the method and they really do ignore the money management or the mindset or the psychology. I think a lot of people recognize that the psychology is an important part of what we do but they probably don’t accept it as being such a vital part and they worry about it later. They focus so much on the method, the entry, the trading system.

So my key message is look to be successful in trading, it doesn’t matter who you are, you must have a trading plan, and a trading plan that suits you. Every consistently profitable trader out there has a trading plan. It works for them, its right for them and they use it every day and they implement it every day and they are very very successful doing that.

And you ask anyone who is failing do you have a trading plan many well say, well not really. Some will say well I think I do but not really sure. The bottom line is anyone who is successful does have one, those who don’t, generally the odds are they won’t succeed. That’s harsh but that’s the realities of trading.’

Tom: ‘So you find the successful traders actually write this down before they make the entry into the market, or exit. They establish, they have it clearly defined on paper so it’s not just in their head where they can change it?’

Stuart: ‘Absolutely. Documented is the best. It gives us something tangible. Here’s a piece of paper, you can physically touch it, here are my guidelines, here are my rules this is all I need to follow. And if I follow this I will be successful. My odds have significantly increased.

If I gave this to someone else and paid them to strictly follow that plan, chances are they would make money. So writing it down, documenting it, it gives it something tangible it gives it something real. But funny you should say I think the majority of us starting out really don’t have a trading plan. ‘

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