Building A Complete Trading Plan

A Blueprint For Your Trading

by Vadym Graifer

The active management of a trading account should be treated as a business and requires a complete trading plan. Here's how to build one.

A trading plan is often described as a document with setups that a trader intends to trade and details of entry and exit. In best-case scenarios, rules of money management are added, instructing a trader on how to act during a trade. While such a plan is better than a haphazard approach, it is not nearly enough for a beginning trader who needs to build an entire trading method from scratch.


The most common shortcomings of an incomplete trading plan are:

Not many would venture into a new business without a thoroughly documented business plan. The active management of your investment or trading account is a business and requires a complete trading plan, with each of its elements aligned and interconnected.

A trading plan outlines your entire approach to the stock market (or any other market for that matter, be it futures or currencies). It matches your actions and objectives, risk tolerance, individual circumstances, and personality traits. It defines your tools, states criteria for entry and exits, establishes your general approach, and outlines procedures to realize your goals. Finally, it outlines your course of action in a disciplined manner intended to preserve your hard-earned money from excessive risk.

To structure your trading plan properly, start with generalities, moving to details, aligning all elements of your plan. Skipping these first steps is like building the walls without a proper foundation -- in other words, a house of cards.

  ...Continued in the January 2006 issue of Technical Analysis of STOCKS & COMMODITIES

Excerpted from an article originally published in the January 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.

Return to January 2006 Contents