People often ask, Myna, you always talk about having a trading plan and planning trades. How exactly do you create a trading plan?

Many traders approach trading in a very chaotic manner, without a fixed set of instruments or any trading standards. Sometimes they guess tops and bottoms, sometimes they trade breakouts, sometimes they use moving averages, and sometimes they use MACD.

This is what is colloquially known as the "thigh-slapping trading method."

However, the outcome for most people who trade this way is loss, because the randomness is too strong. Relying solely on subjective judgment to make trades means that profits are a matter of luck, and losses are a matter of fate. We cannot leave our destiny in the hands of luck.

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Therefore, we need a trading plan to help us deal with all the unexpected situations in trading and to establish our own trading rules. With this, the probability of making a profit in trades will greatly increase.

Please keep in mind: Even the worst trading plan is better than having no trading plan at all.

So, what is a trading plan?Let me provide an example. For instance, my entry criterion is: after the price breaks through the resistance level of the previous high (low), there is a bullish or bearish trap, and after forming a reversal candlestick pattern, I enter the market.

Taking last week's Brent crude oil as an example, my trading plan would be:

(1) Last week, Brent crude oil broke through the previous high resistance level of 72.92.

(2) A bullish trap was formed and then reversed in the candlestick pattern.

(3) I would enter a short position at the closing price of the candlestick pattern at 72.56.

(4) The stop loss would be set at 73.05.

This is just a simple example. In the following article, I will demonstrate each step of my trading plan in detail. Additionally, my public account (Eight-Digit Garden) has written many similar examples, and I recommend that everyone combines them for reference.

2. Precautions for Trading Plans

(1) Clear and Absolute Standards

Many traders lack execution power, which is not necessarily due to a problem with their mindset. It could also be because the trading plan is unclear, with too many ambiguous standards. By the time they execute, they may not even know where the loss occurred.For example:

A friend asked me about his trading criteria: a strong upward break of the previous high on the candlestick chart, considering going long, and if the retrace breaks the support level but doesn't break through, enter the position.

At this point, there is a question, "How is 'breaking above the previous high' defined?" What is the standard for the support not breaking on a retrace? This is not a quantifiable trading plan, and the difficulty in execution is too great.

If I were to formulate this trading plan, it would be like this:

Confirm the breakout by breaking above the previous high by 30 points and go long. This way, when we execute, we are clear that we do not go long at 29 points, but we do at 30 points, with no gray area. Ambiguous terms like "strong breakout" will never appear in my trading plan.

(2) Strong executability

(1) The details of the trading plan should not be too complex.

If a trading plan has many details and is very complex, it is easy to overlook and miss some details when executing, making the execution difficult and the probability of making money low.

(2) The trading frequency should not be too high.

Every trading plan involves: trading signals, confirming trends, entering positions, setting stop losses, and adjusting stop loss and take profit strategies. If the trading frequency is too high, one has to operate continuously, which can lead to confusion and mistakes.Trading involves dealing with money, and even a small mistake can lead to significant financial losses, so it must be taken seriously.

3. Specific process of the trading plan

According to my ZigZag trading system, I will document a trading plan for the euro against the US dollar at the 1-hour level on May 17th, along with the details of the trading process for everyone's reference.

My trading criteria:

(1) Direction confirmation standard: A 1-hour candlestick with its body above the moving average confirms a bullish position, while a candlestick with its body piercing through the moving average confirms a bearish position.

(2) Entry position standard: A 1-hour candlestick retraces to the moving average without piercing through it, and at the same time, the ZigZag indicator forms a turning point.

(3) Entry pattern standard: Switch to a 5-minute chart and combine the ZigZag indicator with the moving average to form a breakout entry.

(4) Stop-loss and take-profit settings: Exit when the risk-reward ratio reaches 2:1, and set a stop-loss protection when the risk-reward ratio reaches 1:1.

Trading plan demonstration:

On May 14th, based on my trading criteria, a bullish expectation was formed for the euro against the US dollar. The hourly K-line of the euro against the US dollar on May 14th at 9 AM closed above the EMA90 moving average, confirming the bullish position. Therefore, the trading plan for the euro against the US dollar on May 17th is to go long.Translate the following text into English:

(1) First step of the trading plan:

When the 1-hour chart price retraces and forms a new inflection point on the ZigZag indicator, and the body of the candlestick does not break through the moving average, enter a long position.

At this time, there are two possibilities:

A possibility: The market retracement forms an inflection point → Switch to the 5-minute chart and wait for the structure to enter.

B possibility: The body of the candlestick breaks through the moving average, changing the judgment of the bullish trend → Stop bullish trading.

(2) Second step of the trading plan:

When the ZigZag indicator forms a new inflection point and the body of the candlestick has not broken through the moving average, you can enter a long position and switch to the 5-minute candlestick chart.

At this time, there are two possibilities:

A possibility: A structure for entry is formed on the 5-minute chart → Calculate the position size and enter.

B possibility: No entry structure is formed on the 5-minute chart, the market continues to fall, and there is no opportunity to enter, and the hourly trend changes → Stop trading.Step 3 of the trading plan:

A 5-minute formation is formed for entry. Enter a long position on a break of 1.21477, with a stop loss of 230 pips in the opposite direction.

At this point, there are two possibilities:

A: After entering the long position, the market moves in a driving manner, and the risk-reward ratio exceeds 1:1. At this time, adjust the stop loss to the entry price and hold the long position until it reaches an automatic take-profit at a 2:1 risk-reward ratio. There are two possibilities at this stage:

1) If the order is protected, look for a 5-minute formation to re-enter.

2) If the order is not protected, hold the position until the take-profit is triggered.

B: If the market does not move in a bullish direction after entering the long position, the order is stopped out. There are two possibilities at this stage:

1) After the stop out, if the 1-hour chart still has a bullish expectation to continue, look for a new 5-minute formation to enter a long position.

(After entering, continue with step 3 of the trading plan)

2) After the stop out, if the 1-hour chart deteriorates and the hourly trend changes, stop trading.I will summarize the trading plan mentioned above:

(1) Response Strategy: No matter where the market goes, the response strategy for the next step has already been thought out in advance.

(2) Possibilities of Market Movement: The plan includes all possible movements of the market trend, and there is a response strategy no matter how the market trend develops.

(3) Clear Standards: All plans and response strategies are clear and unambiguous, with no gray areas, making them easy to execute.

These are the considerations that should be taken into account when formulating a trading plan, and I hope they are helpful to everyone.