What is a trading plan?
A trading plan represents an investor's personal approach to trading. It can comprise a few key points that can be memorised, although it is usually advisable to write it down. The plan helps traders to plan their actions in the market and review how well they are performing against set goals.
Where have you heard about trading plans?
All investment guides for beginners recommend starting with a plan. And a lot of traders say that a detailed plan is what separates good and bad traders.
What you need to know about trading plans...
Trading plans should help you focus on planning and carrying out a certain trading strategy. Although this plan will be completely unique to you as an investor, there are some principles to a good plan that are common to all investors. These include listing your skills, your risk appetite, your criteria both for buying shares and for selling them and the need for good record keeping.
Think of your trading plan as a roadmap: write down what type of investor you consider yourself to be, what prior knowledge you have, and how much capital you have to invest. Follow this up by think about where you see yourself ending up, what your planned time frame for success is, and what form you see this success taking.