Trading is a business like any other. Treat it accordingly. It’s about the evaluation of risk for a potential trade. Everyone who has been involved in the financial market for a while will know to appreciate a trading plan. Market participants who have been hurt with losses regret not having had one from the first moment on. After all, it is more exciting to jump into the first trade and get the drill immediately.

Imagine you were about to buy property. Wouldn’t you balance the pros and cons of the location, the buying price, or your monthly annuity? You certainly will not buy the first property that comes across you. Unfortunately this is precisely how beginners approach trading. The hurdles of opening a trading account and depositing some cash are far lower than, say, registering your own business. Henceforth, trading is not taken as seriously.

When composing your trading plan, you have to understand most of all yourself. Why do you want to trade? What are the specific goals you are trying to achieve with trading? How much time during the day can you dedicate to it? Can you handle a loss of $50, $1,000, or $5,000 per trade? How would such a loss affect you? Do you prefer to harness large trends, or quick trades throughout the day?

The next step is to find the right market and the right time frame. For example, I have chosen the ES for myself because I want to focus on one instrument and trade it well. My primary time frame is the 1 hour chart.

Going further, you need to know your specific trading strategy. Create one that is as objective as possible because such will stand a higher chance to last throughout various market conditions. I have abandoned all indicators and focus merely on the price. This is what every market participant is seeing. Define where your stop-loss would be at and what the potential loss is if it gets hit. I want to make sure to quit the trade if the original reason for entry is no longer given. I take visible peaks or troughs to put the stop-loss at. With the help of the 1 hour time frame, I am able to detect significant support and resistance areas which help me to find an entry. Everyone will notice if a new high or low is taken out. Do not miss to test your tactics on paper before risking real money.

Prepare a trading journal once you have collected some experience and want to get to know yourself better. Write down your emotions, your reasoning for each action made, and a lessons learned for upcoming trades. It seriously helps at becoming more objective in your trading decisions. You engage yourself with the decisions made and will be more alert of making mistakes in future.