• Richard Jackson

4 essential parts of a trading plan


New traders tend to focus on only two characteristics of a trading plan; entry and exit, however it is super important to understand the full story. There are 4 components to the plan that are necessary to have a full understanding of the quality of your trading system. If we break it down in to components, then we can concentrate on the task at hand instead of becoming overwhelmed with an overload of information. Also, the order of these are also important to set yourself up for identifying high probability trade setups.


First and I guess most important is what I call Filters. This part helps us decide where support and resistance are located, identifies reversal patterns, divergence, trend lines, Elliott wave etc. This is probably the more complex and more time dependent component. Filter will cut through low and medium probability trades to only allow a trader to focus on the high probability set ups.


Once we have done this, we can then seek out our Entry. If all the ducks line up in our filtering, then we can anticipate the entry. If you have read my article on “The 2 most important fundamental characteristics of trading that every trader should know”, then our entry must satisfy good market timing. How to do this? Then you may need to have a closer look at the Lepus Proprietary Trading ConvergenceTrader.com course.


The next one is Risk Management. Risk is how much you are prepared to lose, i.e. where to place your stop loss. Many traders forget to move their stop to reduce risk and keep a risk/reward ratio of 1:1, which is never going to work for you. Because we can never predict the future it is essential to reduce risk throughout the trade. In my trading strategy, 50% Convergence Rule, I detail a very mechanical way to do this which helps eliminate errors caused by emotions and cognitive biases.


Last is your Profit Target. This should always be treated separately from the Stop loss. The placement is very important. Just guessing where to place a TP is never going to work for you. It is necessary to place it in an area where all the big players place theirs. Once we place the TP, it is also important not to touch it. Many traders sometimes move it around or exit if the target is almost hit which just denies them of their well-deserved gain.

I have said this to several traders who get direct mentoring from me and are in training to become traders for Lepus Proprietary Trading – “If you are willing to accept a full loss then why won’t you accept a full win?” Obviously, this is due to behavioural flaws. Understand-these-4-cognitive-biases-to-get-on-top-of-your-game

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Disclaimer: Trading foreign exchange and futures on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange or futures you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange and futures trading and seek advice from an independent financial adviser if you have any doubts.  Past performance of financial products is no assurance of future performance. Jackson Capital Pty Ltd (ABN: 82165682842) is a Corporate Authorized Representative (CAR No. 446944) of ACN 168 652 542 PTY LTD (ACN 168 652 542) which holds an Australian Financial Services Licence (AFSL no. 000455388)

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