What makes up a good trading plan

Why is a trading plan vital? A trading plan is the center of your business. Without a business plan most businesses will fail, exactly the same philosophy applies to trading plans.

A well defined and executed trading plan will will let you remain flexible whilst being regimented.

What is a trading plan?
A good trading strategy is a guideline to assist you to make good trading decisions.

It's made up of of two fundamental parts:

1. Trading system or technique for buy/sell alerts
2. Money management parameters

Developing a trading plan is usually very time consuming, this is the reason most people don't bother. In far too many cases the instant satisfaction of trading simply overwhelms the trader.

A trading plan doesn't have to be complicated, in fact it is usually better not to be so.

An illustration of a minimal trading plan is:
"Buy 1000 share CFDs in Google on open the day after my entry criteria has been met."

You could possibly follow this every single day and not have to think very hard. That is in itself a bonus. It means it is simple to follow and easy to stick to.

Professional trading plans are nearly always more complex than this. Why? Because to trade professionally you have got to be able to convince people to part with their funds. This is of course not always easy!

The sort of questions that a professional is going to be asked when they start raising funds to trade with will include questions like:

1. How do you intend to trade?
2. What kind of system will you employ?
3. What markets will you trade?
4. How much will you risk?
5. How much will you be able to lose?
6. What can you realistically anticipate to make?
7. Just how much are your trading expenses?
8. How will you stop yourself from losing all the money invested?
9. Just how much will you risk at once?
10. How many markets will you trade?
11. What will be your normal hold time?
12. How will you minimize risk?

These seem like easy questions, but be honest with yourself and write the answers down.

Components of a trading plan
Trading plans are often very personal things. If one system worked for all then the markets would naturally cease to exist, which is why they do not. A couple of pointers to help you choose a trading system include:

1. Disregard the "secret" systems, they do not work
2. You might have different systems for several markets, steer clear of this if possible
3. Your system does not have to be mechanical, many would argue mechanical systems can not work
4. Should have the versatility for being long and short
5. It should have a money management plan that will help you control risk

Perhaps the simplest advice is to purchase something used by pros and figure out how to trade it. Pros know that the best systems to trade exhibit a couple of simple characteristics:

1. Possess a positive expectancy of making money
2. Adapt to different markets
3. Have clear entry and exit rules
4. Usually are not overly optimized
5. Utilize effective capital management rules

These kind of systems are inherently good to trade as there is a clear understanding that in the long haul they make money. They do however require some effort to learn how to trade them, which tends to discourage many traders.

Article Source: http://www.gamblingarticlessite.net

John Masterton is a professional CFD trader trading with Australia's largest and most popular CFD provider, IC Markets. John has published a number of articles on CFD education including guides and ebooks which you can download for free.

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