Developing a good trading plan will provide you with a solid framework to improve your trading. The first step to developing a trading plan is to define your specific goals and a time frame to achieve them. Successful trading is a by product of adhering to a sound plan that addresses your entry and exit strategies, risk and money management.
Fundamental or technical analysis can be used to analyse signals to determine when you should enter into a trade. There are a number of methods that can be used to determine your entry including ‘buy low, sell high’, ‘buy high, sell higher’ or ‘buy high, sell low’ for short selling.
A good trade entry price will generally account for around 10 – 20% of your overall trading success. Successful traders are able to pick entry points accurately, however overall they can often have more unsuccessful trades than successful but are still very profitable, through utilising good risk and money management strategies.
The exit price of the trade should be determined prior to entering a trade. A stop-loss can be used to minimise any losses on a losing trade or to lock in profits on winning trades. A stop-loss should take into account the market you are trading, your trading goals, your trading time frame and your risk level. There are four main ways that stop-losses can be set. These methods can be used in isolation or together. It is important that you examine each exit price methodology to work out which method is best suited to your trading plan.