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Trading Plan: A Roadmap To Trading The Markets

Aug 17, 2007
Having a trading plan is similar to having a map when traveling to a new location. Modern day vehicles often come with a navigation system making it easier to travel with the fastest route. A trading plan acts as a road map for the trading day.

Most new traders trade without a plan. This often causes reckless trading, emotional trading, and no predefined entry and exit points. They are simply lost during the trading session. Designing a plan prior to the open is necessary. Most new traders are still inexperienced to devise an effective trading plan that can guide them throughout the day. They are unable to locate key support and resistance levels, do not hold strict money management rules, and lack the discipline needed in trading. In order to devise a plan, one must be able to understand how to make one. This requires market knowledge and a methodology a trader feels comfortable with.

So What Is A Trading Plan?

Everyday after the close I will spend 1-2 hours studying the market action. I will then go through my daily charts, 233 TICK charts, and Market Profile charts. First thing I do is to look for market acceptance vs rejection. Then I switch to the daily chart to view the bigger trend. I will then plot the pivot points and any significant price level that I will be looking at accordingly. This gives me a road map for the markets.

The second step is to plot the route I plan to take on the road map. I will visualize a number of possible situations for the following trading day. Couple examples include:

1. If the markets open up above the value high pivot, I will look for long setups.
2. If the markets gap down to the daily pivot, I will fade it for a gap fill.
3. I will not trade between certain price levels as it offers no opportunity.

Every trader has their own methods and analysis techniques to develop a trading plan. There is no right or wrong way to devise one. The biggest mistake alot of traders make is that even with a plan, they are unable to follow it. Why draw a map and not use it?

Develop a trading plan and stick with it. Have the discipline to follow your plans. By having a plan and applying money management, you have a significant edge over a good percentage of traders. Best of trading.
About the Author
James Lee is a full-time day trader specializing in the mini-sized Dow futures. His core trading strategy is based on pivot point clusters and Market Profile. Find out how to identify high probability trading opportunities at http://www.traderslaboratory.com.
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