The Importance Of A Trading Plan

Today, as I opened up my charting software to check my open H4 swing positions as they roll over for the first time of the day at 08:00am, I noticed a long position I’m holding on $DAX that I hadn’t checked on Friday had shot off upwards from my 12596.4 entry point a few days earlier and was currently showing a just under +200 point open profit on the trade. Now, the reason that seeing this inspired this post in regards to the importance of a trading plan is because I’ve recently introduced a new day trading strategy that I intend to trade alongside my H4 swing strategy, and in the weekly plan I wrote last night [On a Sunday evening, pre-market open] I’d stated that I was going to let my current H4 swing positions give me an exit signal before closing them, and then move up from H4 to D1 to allow me to fit the new day trading strategy in without compromising the attention needed to manage the swing portfolio, as I know I’d struggle to trade both with the attention needed to maintain consistency.

So, back to this morning… I wake up to see the $DAX trade is doing exceedingly well and my first reaction is an emotional one, outside of my plan; “Wow I wasn’t expecting that. Maybe I should close this now, bank the profit, and it’ll mean more money in the pot for moving over to the D1 strategy. Maybe I should just close all of the open positions now whilst they’re in profit? What if they all turn around tomorrow and result in break-even trades, or worse, losses?”. All these Maybe’s, all these thoughts and questions, they’re all natural emotional responses and they’re all extremely dangerous if we want to profit as traders. Succumbing to them not only damages our data but it damages our account balance, over the long-term.

These emotional questions make sense on the surface, but closing that trade early would affect the data that following your process provides you with. If you follow your process, all of your data i.e. the outcome of the next 100 trades tells the truth about your strategy. If you open trades that don’t fit your criteria, or if you close trades early and snatch at profits, when you look back at your trade journal it won’t tell the truth and it doesn’t give an accurate picture of your strategies results and therefore it leaves you wondering if you were either lucky or unlucky, or whether your strategy truly is profitable.

Thankfully I’ve learned to identify thoughts like these and as soon as it occurred I stopped myself, minimised the chart and opened my journal. I re-read my plan, and I knew exactly what to do; Nothing! No action was required, for any of the open positions. I usually plan for the week every Sunday evening, and review the week every Saturday morning along with journaling every trade I enter as it’s opened noting why I opened the position, and as I exit, noting why I closed the position, etc. [If you aren’t already doing this, I’d definitely suggest it]. Had I not written a plan and planned for every outcome in advance, or had I not prepared for circumstances like these, I’d have grabbed at the profit in an instant. And hell, maybe on this occasion I’d have been right to do so, but in the long run it would have damaged my account balance and my data, and accurate data is crucial to success as a trader, whether you’re taking a mechanical or discretionary approach.

So, next time you find yourself in a similar situation, reacting with emotion instead of logic, I hope you’ll be able to stop yourself and realise that the thoughts that are being triggered are natural, but they’re extremely dangerous. When these situations arise; Turn to your plan. And of course, if you aren’t already writing a plan, doing so really is crucial and I’d suggest, dependant on your strategy, that you put one together before you begin each trading week. Reviewing this plan can also help you see better results in your trading and can help you identify mistakes you might be missing when trading live, missed setups and/or trades, incorrect entries and/or exits, and so on.

Your edge and building on this edge is your responsibility, no-one else’s.

  • Will.


Leave a Reply