5 Parts of Any Good Trading Plan

1) Technique and Market Knowledge: this is the one that most new traders spend the vast majority of their time on, and yet it actually only equates to a small part of trading success. Still, it's important to have a good knowledge of the various facets of the market, your chosen strategy, and the products you wish to trade. Get good at understanding how these things work.

2)Preparation: this is a really important key I have mentioned many times before. Preparation for the trading day comes in two parts rather than just the obvious one. The first and most obvious preparation involves looking for what you might expect to see from the market, if there are any key news or data releases that day, and so on.

However, just as important is the routine and almost ritualistic mental rehearsal that goes with our standard preparation. So don't rush and make sure to get yourself into the right frame of mind before you start each trading day.

3) Risk and Mental Approach: risk is what traders live and die by. If you don't risk anything, you can't make money, but if you don't control your risk, then you might find your account in tatters very quickly. Knowing that part of trading is potentially losing on any given trade is vital. You select your trade (see key #1 above) and then you risk a set amount. You must control your risk on each single trade to give yourself a fighting chance of success in the long run. You have to be able accept this.

4) Trade Selection and Execution: if you're a discretionary trader like I am, you'll realize that when it comes to taking a trade, there's a little more to it than just clicking buy or sell at a certain price or set-up. Some trades you take when you know you shouldn't and they lose money. Then there are trades that you pass up and you end up kicking yourself when they make money because you had no real reason to not to trade.

To increase your chances of selecting good trades, it's important to have a methodology which incorporates criteria for selecting when to trade or pass on specific opportunities. Otherwise it's more than possible that you'll be deciding based on your fear or greed at that moment.

5) Trade Management: the key many traders tend to overlook is trade management. If you focus all your efforts on getting the perfect entry, you can miss the point that it doesn't matter how great an entry you get unless you can hold the position and make that cash register ring!

If you don't have a method for holding your position or exiting, you'll find it much more difficult to maximize a positive trade or even take a profit when you should. Just as controlling your risk is important, making the most out of your winners can really make a big difference to your bottom line.

Read more:

• The Amateur VS The Professional; The Difference is in The Mind
• A story of a trader: ‘Trading can take over your life – but only if you let it’
• How to Filter Good & Bad Price Action Entry Signals
• The smartest way to invest your first $1000
• Should S&P500 be afraid from Friday 13th what the statistics look like