The Importance of Having a Trading Plan
Published by Sharekhan Education | April 27, 2022
The Importance of Having a Trading Plan
Fahim Ansari | Sharekhan Education
People are often mesmerized by the concept of making a profit in the stock market. And just as often, they enter the stock market without knowing that this is not easy. Trading is simple, but it’s not easy. Making money from the market is difficult since the variables are different every day. If you try to trade the markets emotionally or impulsively, you may lose money instead of making it.
In order to make money from the market, one requires great patience, discipline, dedication, and most importantly, a trading plan that inculcates these three qualities in your trading. Just as a doctor needs all his tools ready to operate, a trader needs to be equipped with the proper tools required for trading, and the most important tool necessary for a trader’s success is a solid and robust trading plan. After all, as the saying goes, if you fail to plan, then you have already planned to fail!
What is Trading Plan?
A trading plan is a set of rules where a trader defines their daily routine, trading strategy, the asset class to trade, risk management, trade management, trading systems, and goals to be achieved. A trading plan is a complete set of rules covering every detail of an individual’s trading life. In simple terms, a trading plan acts like a GPS. Whenever you go wrong, it will prompt you to take the right direction. It will show you your current position as a trader and will aid you to get to your destination. With a trading plan, you will be able to monitor your performance continuously and come to know whether you are moving in the right direction.
Why is a Trading Plan needed?
The best thing about creating a trading plan is that you are constantly pushing yourself towards consistent and profitable trading. Trading without a trading plan is a characteristic of a novice trader. Think of a trading plan like you think of your business plan or the blueprint for your business. Can you imagine a business growing without a proper business plan? So, if you want to be successful in trading, you should treat trading like a business and have a trading plan. Trading without a trading plan is not trading – it’s gambling! If you don’t have a trading plan, you won’t be able to evaluate yourself, and you will not come to know whether whatever you are doing is right or wrong from a trading perspective.
Following a Trading Plan
But just having or writing a trading plan won’t help. An individual might have the world’s best trading plan, but it won’t be effective unless that plan is followed with rock-solid discipline. Following a trading plan properly will help one remain in the trading profession longer than traders who don’t have it. Unless you follow that plan, you will not be able to be profitable in your trading, and you will continuously lose money, thereby losing your confidence in trading. About 80-90% of novices don’t make it. You want to be part of that special 10-20%!
One of the biggest differences between novice traders and consistently successful profitable traders is that successful traders will always have a well-documented trading plan which will help them achieve their trading goal faster. A great and well-documented trading plan will keep you disciplined, consistent, and help you trade without emotions. It will do this since you have thought through all the different scenarios and documented what you will do when things go wrong.
We at Sharekhan Education heavily emphasise the importance of having and following a sound trading plan. And for a 360-degree understanding of trading and investing, its concepts and its strategies, we highly recommend you go through our extensive courses and pick out the one that best caters to your needs!
