February 22

Top 5 Reasons Why You Need To Adhere To Your Trading Plan

By Yvan

Top 5 Reasons Why You Need To Adhere To Your Trading Plan

Following your trading plan should be your number one priority.

Okay, we all know that. But why –why is it so important to follow your plan?

So let me first start by saying this: If you are trying to achieve your financial goals in the market, you don’t need to implement your trading plan.

Really you don’t! Many have done just fine without it.

But here’s an important caveat: the kind of market success these people have achieved, it is purely a function of luck! In other words, it is random; it isn’t sustainable (and cannot be).

Durable market success (consistent profitability) can only be the logical outcome of a structured and process-based approach.

Here’s how adhering to your plan will help you:

1. It will help you organize your business.

Most new traders don’t understand that trading is a real business. In fact, any activity engaged on a regular basis with the intent of making money is a business.

Every trader will say that they want consistent profits. What business owner doesn’t? We all want a reliable source of income, wealth generation, etc., but how can you expect consistent results from any business that never got properly organized in the first place? This is the primary reason why venture capitalists will not even listen to the best of business ideas if the person presenting them doesn’t have a business plan. The underlying assumption is that if you can’t build it on paper, how the hell do you expect to build it in the real world?

2. Your plan will break your goals down into a process.

When you have a proven plan, you understand that market success isn’t an overnight event. Since you’ve tested your strategy and devised your plan accordingly, you know that market success will come to you as a result of following your process. Small loss, bigger profits. Rinse and repeat!

3.  Your plan structures your trading operations.

If you don’t have a plan – or if you have one and choose to not follow it most of the time – your actions will be inconsistent. Randomness in your behavior gives you random results!

For instance, after a loss (or a losing strike), you will tend to think that a successful trade is just around the corner and that your luck is about to turn. You will tend to increase your size, exit winning trades too early, and exit losing trades too late. You will look for that one trade that will make it all back. Your ability to manage your current trade(s) will be based on your current mental state. This is really the epitome of a gambler.

Holding (and following) a trading plan is another way of acknowledging the fact thoughts can deceive you, especially when you’re under pressure. But your trading plan is always right –it is there to help you take a structured approach to the markets and lower your emotional involvement in each and every trade you place.

4. It promotes confidence.

Your trading plan will help you understand what you are exactly looking for in the markets in terms of set-ups, stocks to trade, risk to reward scenarios, etc. Understanding the ins and outs of your methodology begets confidence. Confidence begets the right actions. The right actions engender consistent results.

5. Following your plan you will help you get positive results.

OK, this is not a guarantee…. but it will make it more likely mathematically!

Final words…

Let me just conclude this short post by saying that your trading plan is not a magic wand that will make all your trading goals come true. No such thing exists, of course. Rather, see it as a tool (a very useful one) that will bring you as close as possible to that ideal by protecting you at all times insofar as you follow it. A recurring pattern that we can observe among successful traders is that they treat trading as a business. Having a plan is crucial in that approach.

So, do yourself a favor…. don’t complicate your life… have a trading plan and follow it with consistent and conscientious regularity.

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