- Outline your motivation
Figuring out your motivation for trading and the time you’re willing to commit is an important step in creating your trading plan. Ask yourself why you want to become a trader and then write down what you want to achieve from trading.
- Decide how much time you can commit to trading
Work out how much time you can commit to your trading activities. Can you trade while you’re at work, or do you have to manage your trades early in the mornings or late at night?
If you want to make a lot of trades a day, you’ll need more time. If you’re going long on assets that will mature over a significant period of time – and plan to use stops, limits, and alerts to manage your risk – you may not need many hours a day.
- Define your goals
Any trading goal shouldn’t just be a simple statement, it should be specific, measurable, attainable, relevant, and time-bound (SMART). For example, ‘I want to increase the value of my entire portfolio by 15% in the next 12 months. This goal is SMART because the figures are specific, you can measure your success, it’s attainable, it’s about trading, and there’s a time frame attached to it.
- Choose a risk-reward ratio
Before you start trading, work out how much risk you're prepared to take on – both for individual trades and your trading strategy as a whole. Deciding your risk limit is very important. Market prices are always changing and even the safest financial instruments carry some degree of risk. Some new traders prefer to take on a lower risk to test the waters, while some take on more risk in the hopes of making larger profits – this is completely up to you.
- Decide how much capital you have for trading
Look at how much money you can afford to dedicate to trading. You should never risk more than you can afford to lose. Trading involves plenty of risks, and you could end up losing all your trading capital (or more, if you are a professional trader).
Do the maths before you start and make sure you can afford the maximum potential loss on every trade. If you don't have enough trading capital to start right now, practice trading on a demo account until you do.
- Assess your market knowledge
The details of your trading plan will be affected by the market you want to trade. This is because a forex trading plan, for example, will be different from a stock trading plan.
First, evaluate your expertise when it comes to asset classes and markets, and learn as much as you can about the one you want to trade. Then, consider when the market opens and closes, the volatility of the market, and how much you stand to lose or gain per point of movement in the price. If you’re not happy with these factors, you may want to choose a different market.
- Start a trading diary
For a trading plan to work it needs to be backed up by a trading diary. You should use your trading diary to document your trades as this can help you find out what’s working and what isn’t.
You don’t only have to include the technical details, such as the entry and exit points of the trade, but also the rationale behind your trading decisions and emotions. If you deviate from your plan, write down why you did it and what the outcome was. The more detail in your diary, the better.
That's how you will make a trading plan. One thing, if have any kind of provider, who is providing your market analysis. You will have to add their predictions to your trading plan. Just for I have Pipswin.
Thanks!