Why You Need To Trade With A Plan..Feb 09, 2023
The words Trading with a plan..
They are chucked around constantly as a way of giving Traders a warning before they venture into the wilderness that is the Markets. Often, these terms are glanced over and just treated as nothing more than an unnecessary cautious statement, but that's far from the truth. Having a Trading Plan is quintessential if you are going to stay afloat at all times and never over-leverage. Your plan is going to need to guide you safely through the swings in market sentiment and harsh moves to the north or south.
So, what does a Trading plan actually need to achieve this? Well, it's simple. Mostly, it's just about how you arrange your capital and manage risk at all times. This means, when Markets are moving against you you will need to have a full plan to deal with it. This is going to be based off your risk appetite, maximum size you are willing to take, time spent trading, loss mitigating or hedging methods you have and your current drawdown. These factors are incredibly important and skipping any one of them can cause the whole thing to break.
Market Sentiment harshly swapping one way can cause an extreme stretch in Markets; much like when you see a rally or a sell-off. The momentum that pushes the price and the room it has to go until it hits reasonably good prices can be hard and fast. You need to interpret that sentiment before it takes full force. A simple way to do this is just to drop your Trade Size and space you Trades out as the market moves. You do not want to over-leverage or bunch your positions in desperation / FOMO.
The time you actually spend Trading and how you mitigate loss bunch up as one aspect. If you are not able to be at the desk, you will miss opportunities to trade and therefore losses can extend without any control. Having larger capital is normally necessary and spacing further with DCA. Trading fast yields more gains but if you cannot control it, or worse do not have a plan, Drawdown can grow rapidly as the market moves against you. Incorporating hedging methods like we do at WOTT Academy is a great way to prevent loss and control your trading in market extremes.
Position Sizes and Drawdown is the biggest part of a Risk Plan. You will have to know at any time, what your total maximum exposure will be in the market both in total and per position in lot size. This needs to be pre-determined before you start trading, because it gives you a cap that you can work with regardless of Drawdown. Mostly, Traders lack this and they overleverage, putting more and more positions in the market as it rises or falls and eventually getting overcome by increasing negative P/L that is just unsustainable.
So all in all, to control your Trading with a plan you will need to heavily focus on risk. Finding Trades based on PA Knowledge and the natural flow of the market comes into it, but you cannot sustainably make decisions based on that alone without a risk plan. Knowing where you are in terms of exposure at any time and keeping track of your drawdown in all conditions is essential to making Trading long term. There is no room for enormous risks, it needs to be consistent over time. The key being the word 'over-time'.
So take your time and get on board WOTT with a full risk plan for any situation!
Founder Of WOTT Trading Academy; The Honest Trading Service