5 Key Elements of a Successful Trading Plan | Bulls on Wall Street

5 Key Elements of a Successful Trading Plan

You can have the best stocks in the world on your watch list. But without a plan, you cannot consistently make money from them. You need a trading plan to capitalize on the price movement, and time your entries and exits correctly!

Once the market opens stocks will be moving everywhere. If you don’t plan for every scenario for the stock’s on your watch list, there is no way you will be able to monetize the names you’re watching. Here are the 5 elements of a trading plan:

Prepare For Different Scenarios With Your Trading Plan

In trading, you will never know for sure what a stock will do. You can know what is likely to happen. But you still have to prepare for as many scenarios as possible.

You cannot just go into a trade assuming it will be a winner. Let’s say you’re watching 5 stocks for today’s trading session. Here are the kind of questions you need to find answers for:

What will you do if the stock gaps up and rips? What you do if they gap down and dump? What will you need the stock to do to enter or exit a position?

You should also have already identified key areas of support and resistance on all the names, and done all the necessary fundamental research.  When the market opens, there should be NO last-minute analysis. Most of the work and planning should be done already. When the bell rings,  you should be primarily executing and waiting for new opportunities.

Entry Strategy

What are your entry strategies for the stocks on your watch list? What setups will you use? What does the stock need to do to give you a high probability entry signal? Will you scale into your position or will you go full size at once? Before you trade any stocks, you need to have a battle-tested entry strategy.

Good entries make the rest of the trade so much easier. And good entries come from careful planning before the market opens. In this quick video lesson I’ll show you how I like to enter my trades:

Stop Loss Strategy

Every trading strategy has a probability of any trade turning into a loser. You have to plan for what happens if that trade goes against you. At what price level does your trade thesis become invalid? You have to know this price level going into the trade in order to know how much money you will risk on the trade. This also determines how many shares you will buy or short. Stop-loss strategies are the difference between traders who can do this for a living and those who cannot.

trading plan forex

Portfolio Risk

Knowing how much money you will risk. This makes managing the trade a TON easier. The worst-case scenario is defined. Therefore, you can let the trade play out, and not get anxious when the trade doesn’t go your way.

This also determines how many shares you will take on the trade. Let’s say you want to long $RCL at $50. Your stop loss is at $49, and you want to risk $200 on the trade. This means you will buy 200 shares of the stock for the trade. Defining how much money you will risk on a trade is ESSENTIAL.

Profit Taking Strategy

What price levels will you start taking profits? Will you take partial profits or everything off at once? How many shares will you sell or cover? Without a profit-taking strategy preplanned before a trade, you won’t be able to fully capitalize on the stock if it goes in your favor.

You don’t want to take profits too soon and miss out on most of the move. You also don’t want to have a huge unrealized gain and have the stock come all the way back and turn into breakeven or a loser. Making a profit-taking strategy before you take the trade decreases the probability of these two occurrences happening. 

Summary

trading plan template

Without trading plans, there is no point in even making a watch list in the first place. The best time to make trading plans is around 8:30 AM EST. At this time you know the pre-market trend and see all the new stocks gapping up and down in response to morning press releases. Your trading plans will have a low probability of playing out if you don’t follow the steps mentioned above.

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