By Brian Bachelier, VP of Trader Segment Experience
We all make plans: plans for the weekend, plans for grocery shopping and plans to improve our home, just to name a few. Based on the results of a recent Scottrade study, one of the most important types of planning we can do may be for trading.
In the Scottrade® American Trader Study, 94% of traders who have a written trading plan reported being more successful when they stick to their plan. While that seems incredibly simple, the importance of a trading plan makes perfect sense when you think about it. If you plan your grocery list before going to the store, you’re less likely to make impulse buys. The same is true of trading – if you have a plan, you’re less likely to give in to emotional responses to changes in the market.
How to Create a Trading Plan
In a 2012 blog, author and Scottrade investment consultant Ross B. identified three considerations for creating a trading plan:
- Find and Understand Your Trading Style
- Define Your Entry and Exit Points
- Identify How to Manage Risk
The first consideration is obviously a personal decision that’s unique to each trader. My style may be very different than yours, but that’s not a bad thing. We probably still have a lot in common when we think about the second two considerations: we both want to accurately identify the right entry and exit points for our strategies and be able to manage risk according to our different levels of risk tolerance.
To learn how to create or improve your trading plan, watch the Scottrade® Strategy Sessions brought to you by Learning Markets1 below.
Trading Strategy Part 1: Identifying Technical Divergences
Learning Markets analysts introduce you to technical divergences…the trading method they will utilize to generate trade-entry signals.
Trading Strategy Part 2: Protecting Your Profits and Managing Your Risk
Learning Markets analysts walk through the process of entering a trade without exposing your portfolio to undue levels of risk once you’ve identified the appropriate buy signal.
Trading Strategy Part 3: Knowing When to Hold ‘em and When to Fold ‘em
Learning Markets analyst walk you through potential exit points – whether you’re profitable or not – using this trading strategy.
Trading Strategy Part 4: Salvaging a Bad Trade with Call Options
Learning Markets Analysts walk you through the steps you can take to try and salvage a trade you’re upside-down in by lowering the breakeven point of the trade using call options.
How does your trading plan help you be more successful?
Read Next: Why Traders Reported Feeling Optimistic
Brian Bachelier has been with Scottrade for more than 15 years and is currently managing the trader client experience. As a trader himself, Brian continually looks for ways to improve Scottrade’s active trading resources and help offer our clients a competitive edge in the market.
About the 2014 Scottrade American Trader Survey
The study was commissioned by Scottrade and conducted online with a nationally representative sample of 1,029 traders, who typically hold short to intermediate positions, between March 3 and March 31, 2014. All participants were at least 18 years of age, manage some or all investments without the help of a broker and have traded in the last 12 months. Margin of error for the overall poll is +/- 3 percent at 95 percent confidence.
1Brought to you by Learning Markets. The materials presented are being provided to you for educational purposes only. Scottrade, Inc. and its affiliates have not created and are not responsible for such materials. The content of such materials has not been adopted, endorsed or approved by Scottrade or its affiliates. The content was created and is being presented by an independent party not employed by or affiliated with Scottrade or its affiliates. The information presented or discussed is not a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.