What Is Having A Plan?

This seems to be the unspoken question among the new traders and when no one asks, no one uses a plan.  There seems to be no problem asking the more experienced traders questions like "where should I have a stop loss?" or "would you be entering here?" or "what are you going to do if 'xyz' happens?"  All of these questions are asking "what is your trade plan?" in disguise.  I notice that when traders are asking questions similar to these and they don't like the answer they get, they go ask someone else in hopes that their plan falls in line with what they want to do.  Why go through all this trouble when it isn't going to lead to successful trading anyway?  Because it makes people feel good about them trading with a lack of knowledge of their own style and tolerance.  Sorry if that is harsh but it's the truth.  It is OK to not trade while you are still learning the business, that is how I survived.

So what is a better course of action to take?  Study and figure out how to build your own trade plan.  There is nothing magical about profitable trader's trade plan except that they know it works for them and they stick to it.  They stick to it with every trade, not just the trade you are asking about anticipating that it will fall in line with what you want to do.  So.. what goes into consideration when creating a plan?

1. Account size (how big is your account? what restrictions do you have if any?)
2. Risk tolerance (how much of your account are you willing and able to lose on any single trade?)
3. Position size (how many positions will you have on at once typically? how big will they be? can you handle it if they are all losers?)
4. Risk to reward ratio (how much are you anticipating you can make vs. what your risk tolerance is?)
5. What instruments are you willing and able to participate in? (stocks, futures, options)
6. What is your time frame for holding a position? (different time frames require different approaches)
7. Where are you wrong on your time frame? (risk tolerance doesn't mean you have to take a max loss every time you are wrong).  Where are you still right on your time frame? (ditching a position out of emotion is not how a profitable plan operates)

Now understand that I am not perfect and there is more that goes into day to day decision making (strategy & plan are different which makes it even more personalized), but starting here is better then asking people questions on financial social media that involve many, many steps that you just don't hear about.  Remember, if you don't know what you don't know and it hasn't clicked for you yet; there is no reason to go blowing up account after account.  Just take a step back and really do some serious studying.  Study traders who have a lot more experience than you with a style that falls in line with how you want to trade.  Understand a lot more goes into the decision making than is posted on twitter.

Trade well,

-Michael