Trading & Investing in financial markets is a professional activity and your trading plan is a tool which can help you have clarity on what, why and how you are doing it. Here are the top 10 important questions and answers you need to know about the trading plan which can help you to make better decisions.
Risk comes from not knowing what you’re doing – Warren Buffett
Q: What is a Trading & Investing plan?
A trading plan is a document which has information about your goals, strategies and most importantly why you are trading & investing in financial markets.
Q: Why do you need a Trading & Investing plan?
Trading & Investing in financial markets involves you having to make regular decisions which mostly are to do with buying, selling, and holding financial securities. Having a trading plan will help you to be calm, and rational and avoid making bad emotional decisions which can be costly sometimes!
Q: How you should use the Trading Plan?
As a best practice, you should look at your trading plan before you enter /exit a trade or investment.
Q: What are the key questions you should have answers for in Trading Plan?
Here are the top 10 questions you should have answers to in your Trading Plan.
1 What are my Short ( 1-2 years ) & Medium ( 3-5 years ) term goals?
2 How much trading capital do I have?
3 What markets will I trade and invest in?
4 What is my risk-reward ratio?
5 Do I have sufficient Market knowledge or do I need to do some training?
6 What are my criteria for entering into trade/ investment?
7 How will I manage /monitor my positions in the market once they are open?
8 What are my risk management rules per trade? i.e Document your total capital// budget for trading, risk /reward ratio?
9 How many hours do I have to commit daily / weekly for trading/investing?
10 What type of trader am I?
Q: What are the potential consequences if you don’t have a personal Trading Plan?
Bad decisions, Fear, Anxiety, Greed, Becoming Irrational, and Financial losses.
Q: How often to review & update your Trading Plan?
You should attempt to review it every week and update it every month if necessary.
Q: Is there a basic trading plan template I can start using?
We have put together a basic trading plan template which you can start using and customize according to your needs. You can download it here.
Next Read: What is the difference between financial trading and investing?