Introduction to Trade Plans

I. What is a Trade Plan? A trade-plan should be considered a map. Similar to a map that you would use on vacation, a trade plan should point you in the right direction (like a compass). A trade-plan establishes and defines your route to success by identifying parameters to help you reduce errors.

II. Components of a Trade plan A Trade plan, like a map has components. While a map has a scale, interstates, a compass and lists capitals, a Trade Plan has components as well a. Investment b. Goals c. Method

III. Types of Trade-plans There are different types of maps (sector maps, scan maps, basket maps and weather maps for instance) and you should have varied trade plans depending on your investment objectives.

IV. Effective use of Trade-Plans Just as maps allow a traveler to get to their final destination, a well thought out and followed trade-plan should provide consistency in your trading and help you reach your goals.

a. As a professional, you would never consider attending an interview unprepared, nor would an athlete fail to prepare for an event. As an option trader, you need to be well prepared. b. A trade plan (like a map) will allow you to see patterns and adapt your trading. c. A Trade Plan should help you to recognize patterns, correct and improve on any mistakes you might make. d. A Trade Plan is like a checklist or a routine that helps you determine where your investment and helps you determine what your next step should be

V. What a Trade Plan is: a. A Trade Plan is a tool that encourages continuous learning b. A Trade Plan allows fine tuning as you compare success and failure c. A Trade Plan provides a tracking system d. A Trade Plan is a valuable training tool e. A Trade Plan is a valuable trading tool

If you purchase 1,000 shares of IBM stock at $100.00 and then estimate that $95.00 is your best technical support level, you need to take action at $95.00 A Trade Plan allows you to be a trader instead of a holder. A solid Trade Plan allows you to plan, not pray!

Read our next article: Trade Plans are Road Maps.