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How to Create a Foolproof Trading Plan in 2024

A trading plan is a critical element of trading. Trading plans help to keep a trader on track when times get tough, and to stay humble in times of great success. The formation of both strict and flexible rules and strategies are outlined to depict probable outcomes and defend against stress tested circumstances. A high quality trading plan also delves into the requirements of the trader’s mindset and ability to perform during the trading session. It is now time to see what elements create a foolproof trading plan in 2024.


The Markets

Defining the markets you will focus on is important, because it allows you to hone in on specific knowledge around markets and dig deeper on how they function. The function of a market can relate to multiple concepts, and looking into these concepts can help provide a slight edge in trading that market. So, what are the concepts we need to consider, to create a foolproof trading plan in 2024?


Market Participants

The people that participate in that specific market are there for an outcome. It could be to make money, protect or hedge against trades or assets, or to fill orders on behalf of clients. Funds and institutions form a large portion of most marketplaces, then there’s asset holders in the space (for example, coffee producers may have interest in the market), then there’s the wholesale and retail traders.

Each participant may have a different reason and view of the market, so it is helpful to understand what factors they will be looking for when it comes to making decisions in the market.


Market Function

The way a market functions can greatly change the way you might trade it. Some of the questions you might want to consider, includes:

  • When does the market close?
  • When do options expire on this market?
  • How are orders placed at the start of a trading session?
  • Is there a pre-market session?
  • Do certain holiday periods affect the market?
  • How does the market react to conditions such as natural disasters, large volatility moves and so on?
  • What are the official websites and information sources of these particular markets so that you can keep your finger on the pulse?

Short on ideas how to map out and dive deep into a particular market, check out this example on Oil for more insight into what you could research to get the upper hand.

Knowing the market you want to trade inside and out will help to give you a big advantage over the average retail trader that is using fundamental or technical analysis alone.


The Trading Strategy

Building your strategy means you need to have an idea of how you want to trade the market. Are you looking for certain market conditions where you will focus on, such as when the market is in ‘normal’ trading conditions, or do you want news events to bring high volatility into the mix. Some traders may only focus on a market when it is in extreme highs or lows. Each trader is different and trading styles vary from trader to trader, based on their experience, risk tolerance and what they like to trade. Whenever the market moves, there is an opportunity for someone to profit, so there are no right or wrong answers.


What is Included in a Trading Strategy?

A trading strategy should include considerations around entry and exit conditions including stop losses, target profits and definitions around why you might change them if required.

While it is important to be somewhat strict when trading, traders can benefit from being reactive if the market changes its tune.

If you are using indicators or fundamental information, this should also be outlined to include the location of news and what to read each time, and the parameters for indicators.

A trading strategy should also include risk management concepts and stress tested examples to help the trader weather the periods when the strategy isn’t winning. This will help the trader’s mentality when the market is not providing the rewards it has been, and can help define if the current conditions are not worthwhile trading in.


Should I Have a Static or Flexible Trading Plan?

There should be strict rules around what cannot be changed, but there is often benefit to being malleable in financial markets as they are not static. Outlining when to adapt your trade, make changes to your trading plan and what conditions might create such situations, will be a massive help to being able to react properly when new situations occur.


The Trader

The trader is the asset that makes it all happen. When the asset is performing at its best, rewards will be greatly improved. So what are the elements that can be defined in a foolproof trading plan, that relate directly to the trader?


Trader Mindset

Trading can be tumultuous if the trader is not prepared for profits or losses that display on their account, so being prepared mentally is critical for long term success and weathering new market conditions.

When writing a foolproof trading plan, it is important to define when the mindset of a trader is suitable for trading and when it is not.

If the trader feels anxious, nervous, stressed or angry, these are often signs a trader may not be as effective in the market. However, if the trader is focused, calm, clear and feeling great, this could hold a greater chance of success in the trading period.


Quantified Performance Indicators

To go to greater lengths, given that some traders are looking to make thousands or even hundreds of thousands in a session, they may even incorporate conditions such as blood pressure test parameters, oxygen percentage requirements and perhaps even an EEG scan to ensure the brain is ready for a high octane trading session. They may even have a checklist covering diet and fitness requirements before each trading session.

Since the trader is the asset making the moves in the market, it is imperative that the trader is treated as an asset and ready for each period of trading.


Creating a Foolproof Trading Plan in 2024

In summary, creating a foolproof trading plan is about knowing the market, the people in the market, your own strategy and yourself as the trader. Having these elements thought out and written down will allow you to reflect and adapt as time goes on.

Creating a foolproof trading plan in 2024 is all about writing down each concept that may help you develop an edge in the market, then bringing it all together in one document.

Having the document written is not enough though, the next part is to follow the trading plan diligently while in the heat of the markets.

Create a plan, write it down and be disciplined.