Trading Plan Primer
Ideas to help you get started creating your trading plan
The creation of a trading plan should always start with the desired final result. To achieve the success you desire, the quality and depth of your plan are the keys. Every entry and every exit must be made solely on the rules you design around the indicator looks at the time. An important concept to remember, "INDICATOR BASED ENTRIES- INDICATOR BASED EXITS" are best.
Why are you day trading in the first place? What are your goals, personal and financial, that made you want to day trade? Remind yourself every day by writing your goals at the top of your trading plan and following through reading your trading plan every day. Work on your plan daily. Envision your trading success each day as well as what it looks like 1 year, 3 years, and 5 years from now.
How much money do you need to make annually to make day trading worth your effort? $50,000, $100,000,$250,000. What does your annual goal break down into on a daily average assuming 250 trading days in 1 year? You need this daily average to determine account size and the number of contracts you need to trade to achieve it. Review your goals daily before you start to trade.
What is the easiest way for you to achieve your daily profit average total? Most traders believe they need a higher number of trades to make more money. This is false. You need a majority of your trades to be winners and to trade a higher number of contracts. For example, if your goal is $1000 per day, which is approximately $250,00 annually, trading 4 contracts on trades that guarantee yourself $250 per day profit is 1/2 the work, stress, and effort than trading two contracts and attempting to average $500 per contract daily. As your trading improves, your goals will usually drift higher. This is a natural progression so revisit your goals every few months for the first year. Remember, winning some small amount of money every day is important.
Should you trade more than one market? Which market? Sometimes you must trade a few different markets to answer this question before finalizing your plan. Remember, if you cannot trade one market with close to 100% flawless execution, you will not be able to spit your focus and trade two markets at 100% execution. When will you add on another market? If you trade two markets and both markets give a signal simultaneously, which market is your primary money maker? Will this be the trade you take? Is it better to trade one market well with more contracts or try to take both signals on two markets? How many hours each day are you able to commit to your day trading goals? Including trading, studying, and replay? Typically most traders will need to spend upwards of 4-8 hours per day to solidify their plan. Once complete, your plan will require less study time.
You should start using the simulator and replay and track your executed trades on the trade tracking spreadsheet. This is how you will fill in the blanks in your trading plan for entry and exit management during the course of your education. Staring out, it is important to understand that you do not know what you can and cannot get away with.
How many trades, or better yet, how many weeks of consistently hitting your daily average must you achieve "AFTER YOU FINALIZE YOUR PLAN" before you go live? Write this goal down. Review it daily. You cannot just say, "I will sim for two weeks then go live." You must simulate and replay a well-thought-out plan that proves you can manage all of the indicator-based contingencies the market will throw at your with confidence and produce a consistent profit. Write the number down in your plan then multiply it by 3. Then you will have a realistic expectation of how long it takes.
When new traders write their first plan, they tend to copy Nexgen's trading plan rules and declare Nexgen's plan is their plan. In our experience, we have found those traders who create their own trading plan pictures of trades they executed and annotated from their own spreadsheet work typically have a more solid plan in the end. This process of trading and adapting your plan will allow you to take complete ownership of your trades. Total ownership of your trade setups is the #1 most important concept.
It is worth noting that Nexgen traders with a lot of screen time and experience know the answers to the following paragraph's questions intuitively by reading the current Fibonacci and trigger line scenarios. They can tell you every correct answer to every situation with a 5-10 second scan of their charts. Are you able to answer these questions with a 10-second scan of the current market conditions? If not, you will subject yourself to trading emotions versus trading a well-thought-out plan. Slow down and enjoy the process of becoming an elite technical analyst. You will get there with Nexgen Software's education and through your own repetition. If you rush, you will make one of the new trader's common mistakes.
The fine-tuning of your trading plan comes with experience and time. For example, understanding how the presence of a good or bad top "VIDEO LINK" on your 13-2 chart may change your management of a trend trade. Recognizing a choppy market that is stuck between two areas that may hold. Then when the market is non-trending, do you have another trade to fall back on? Pivot stop-out entries, HVA, and Market flow entries from edges are a compelling addition to a plan when the market is non-trending. Remember, a fully developed plan for each trade you execute is of paramount importance.
Your trading plan must account for every possible eventuality the market CAN and WILL throw at you. Some of those include: when the triggers are strong, at what point will you enter your trend trades, and with what entry method? Will you get in at the best spot with a limit order, market order, a market flow signal, or use a stop entry order? Which different order types will you use with different market conditions? What are the conditions in which you will alter your entry logic? If the triggers are strong and there is a prior divergence, where will you enter and why? If there is a potential trouble spot, where will you enter and exit, how and why? If there is a parabolic trend, how, when, and where will you enter your trade and why? Every detail of your trading plan must be clearly thought-out, so you do not trade emotionally. Indicator-based entries and indicator-based exits help to remove the emotional component of trading.
Now you must think about the management of your trade. Review the basics in the trade management section of the trading plan page. Where will you place your original stop? Why? What if you need a bit more of a stop? What will you do, move the stop lower or higher? Will you get in at a better price? Is there a maximum tick or dollar amount you would be willing to risk on a high probability trade? Would you take the trade twice? If you take the same trade twice with a 10-tick stop, you are actually risking 20 ticks. Is it better to risk 13-15 ticks on the one trade to avoid getting stopped out? When EXACTLY will you move your stop, and what trigger line conditions will cause you to reduce the risk on your trade? A pivot? A market flow signal? Potential divergence? Which trigger line looks plus divergence will cause a move of a stop and exit? Which trigger line conditions will make you ignore a single 5-1 chart divergence, two divergences? At what point will you move to breakeven under different market scenarios? What should you do with your stop when you are in a trade in a parabolic market? Will you move your stop up quickly if the market reaches a trouble spot? Where will you put that stop order if you do move it? Why? What is best for you? When you see the possibility for a potential divergence that may end your trade, where will you place your stop? Are there any market flow situations under the above conditions that make you move your stop up closer than a divergence?
When you take an exit, you have to think through the possible scenarios. When your plan uses a set target level, such as 10-tick and 20-tick profit targets, then you have very little to think about. If you use a dynamic first or second target based on the market conditions, what are the conditions in which you will go for more? What situations will you take LESS than a full profit? Which trigger line situation will you try to get more profit out of the trade?
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