The Key Stock Trading Plan Template
I’ve developed a short trading plan template below. It is a culmination of the material I've read over the years pertaining to trading plans. For simplicity’s sake, I’ve limited my trading plan to one page. That way I can simply glance at it to remind myself of key details.
Identity: Why are you trading? What is your motivation? Do you have a passion for trading? Is money your only reason for trading? Explain the edge that you bring to trading that few or nobody else has. This should be a general overview of yourself as a trader and your reason for trading.
Strength: What do you do well that can be used in trading? Are you analytical? Do you keep a big picture view? If you have a separate career, what skills do you utilize on a day to day basis that helps you trade better. Do you have the drive or the tenacity to do what it takes to get better at trading?
Weaknesses: What can you improve on? Trading psychology? Continuing your trading education? Are you cutting your losses? Do you follow your trading rules?
Yearly Goal: What is your goal for the year or for every year? Are you trying to earn 10% or come out of the year profitable? It doesn’t have to be a monetary goal. It can be achieving a certain amount of successful trades or develop a more successful system? Make sure the goal is achievable in your eyes.
Action Plan: What steps are you going to take to ensure you will meet your yearly goal? What types of stocks are you looking for? Will you be industry specific? Blue chip stocks? What types of trading setups are you looking for? Will you be shorting or only going long? In terms of learning more about trading, what blogs will you be reading? What books? This portion will be your general overview of your trading plan.
Risk Management: How much are you willing to risk per trade (Position Sizing)? Maximum number of trades at one time?
Action Before Tomorrow’s Market: What action/s will you take before tomorrow’s market open? Will you be reviewing the charts of indices? What will determine if you trade tomorrow or not? This section is basic preparation for tomorrow’s market open.
Action During Afternoon Market: In the wake of volatility or market calmness, what action will you take on the stocks you’ve screened? For me, I usually like to enter trades in the afternoon. The reason being it is usually less volatile in the afternoon than the minute or minutes immediately following the market opening.
Entry Criteria: What factors have to be in place for you to enter? Do indices, industry, and the stock charts need to show a positive trend? Is it a criterion that a stock is overbought or oversold before you pull the trigger?
Exit Criteria: When it falls below a stop is that when you will exit? Or will you exit for the purpose of profit taking? What factors need to be in place or conditions that will help you with your decision to exit a trade?
Trading Brokerage: What brokerages do you use? What if one of the brokerages is offline, do you have a backup? Does it matter (Depends on what time frame you are trading)?
Trading Tools: What do you use to screen your stocks, pick your stocks, evaluate or test your trading plan?