If you think planning is an overly formal term, we can use "detailed plan" instead. Regardless of which term you prefer, one thing is certain is that we must be like preparing a long-term life plan to ensure that the plan is detailed and thorough.

In this article, I will discuss the steps and components of a trading plan. A trading plan is similar to a business plan, and it should include all the projects that can show you a successful transaction.

We should create a plan before the transaction rather than during the transaction, which helps us to reduce the impact of trading emotions and be fully focused on what is happening in the market immediately. By planning transactions in advance, we can set basic rules and restrictions so that we can face fear and greed objectively.

The trading plan should include (but is not limited to):

Your ultimate goal to become a full-time or professional trader

What kind of return do you hope the transaction will provide you, and why you are willing to work tirelessly for this. E.g:

Create the lifestyle you want, have the flexibility to work or rest at any time during trading hours, and provide financial support for my family and people I care about.

Your goals must be realistic and achievable. A realistic goal allows you to have an objective benchmark. You can establish daily, weekly or monthly goals. The focus is on "setting a goal" and tracking the progress towards that goal.

Which trading method will you use

The way you trade depends on your personality. For example, if you are a person who doesn't like to fall asleep holding positions, then you should consider doing intraday trading that closes your positions every day.

If your trading style matches your personality, you will enjoy your work and maintain your enthusiasm for trading.

Do you want to be a day trader or a position trader?

Choose your trading strategy/settings

Do you want to focus on Trend trading, Breakout, Pullback, or a combination of the above trading methods?

For each trading setting, develop entry, exit, and stop loss strategies. For example: I will only buy stocks above the 20-day moving average, the MACD line is above the zero axis, and the 50-day average trading volume is at least 1 million shares and stocks with RM0.50 and above; and when the price falls below the 10-day moving average When, I will sell, and so on.

Your risk, capital and position management principles

Do not enter into any transaction before the risk reward calculation has been established. After establishing the risk-reward calculation, it doesn't matter whether your transaction is right or wrong.

As George Soros said, the important thing is: "When you do it right, you make more money than when you do it wrong." Train yourself to accept the fact that not every transaction can be won.

Therefore, you must accept small losses gracefully, try to learn from the losses, and move on to the next trade.

The key to position management is to look down rather than up, that is, look at the stop loss to manage your trades. The stop-loss price will always be determined before buying the stock, and never trade more than you can afford to lose.

You must know your risk tolerance and set stop-loss rules to limit downside risks. E.g:

The funds you are willing to assume> the minimum reward-to-risk ratio of the transaction (Reward-to-risk ratio) is 1.5:1.0.

The investment amount of each stock only accounts for up to 5% of the total capital

The highest risk of each transaction is only 2% of the total capital

If there are losses 3 times a day, trading will stop on that day>Never flatten down

Daily work and transaction time range

What time frame will you trade in the market?

You must know and choose (for yourself) the best trading time for trading. For example, from 9 am to 10 am and from 4 pm to 5 pm (the so-called golden trading hours).

When the market does not have a clear direction, there must be discipline not to trade. If you are not a day trader, you do not need to trade every day. In fact, forcing yourself to trade every day often leads to losses.

Patience is a virtue in trading. If the market direction and stock price have not reached your buying point, have you lost anything? You will always have the opportunity to trade and profit again.

The market/product you want to trade

You must focus on specific markets or specific types of trading products. Professional traders will specialize in trading specific products, so that they can have a good understanding of the characteristics and dynamics of the product and related markets.

And when you have higher trading skills and time allows greater trading frequency, you can seek to replicate success in other market areas.

Review and perfect

In order to review and improve your trading performance, you need to record your transactions in the transaction log. Using the transaction log is a wise strategy to improve performance and increase confidence in execution.

In order to consistently succeed in trading, traders need to go through a comprehensive learning process, and the best tool for optimizing traders is to use the trading log.

A successful trader not only checks every transaction, but also checks the progress of his trading performance. With this tool, you can quantify, review and enhance your transaction process.

Due to the limited length of the article, I will discuss this very important topic in a future column.

The trading plan is a living document. As your experience increases and understanding of the market, it may change.

Why do you like trading?

Trading is one of the most challenging and rewarding professions. We can achieve success in the field of financial transactions through detailed trading plans, correct thinking, methods and tools. This will allow us to control our career development and financial situation without having to rely on other people or the economic situation of a particular country to ensure my job and income.

Do you want to have more control over your career development and financial management? Then you can consider becoming a day trader.