Creating a well-balanced trading plan in Singapore

In trading, having a well-balanced trading plan is essential for two reasons:

Firstly, create a set of rules that you can abide by to take away the guesswork from investing. Second, it will help you become more disciplined and improve your ability to follow through with whatever course of action or decisions you have taken. By doing this, you can also learn from your mistakes and alter your future strategies accordingly (find more info here).

When creating a realistic trade plan – try not to overcomplicate things. The best plans have just enough details in them without overcrowding them with unnecessary information, making it difficult for yourself to focus on the task at hand, which is trading. Remember that it is a plan and not something carved in stone (unless you are religious, perhaps).

What would be the best time frame to set for my trading?

There isn’t a point in having a daily time frame as your plan if your day job gets in the way of trading, instead of compromising a weekly or monthly timeframe and reviewing your progress at those intervals if this happens. Think about allocating specific time frames for reviewing technical analysis and price action strategies instead of multiple timeframes, which will confuse you further. What factors can affect our plans?

  • Economic reports
  • And international events such as politics, wars, disasters etc.
  • Market volatility – how fast prices move up or down within the market.
  • Our own emotions and state of mind can affect our ability to take prompt decisions when things get heated up in the market.

How do I know if my plan is successful?

One should never forget that long term success cannot be measured by short term returns alone. It does not hurt to focus on these couple of key indicators (without obsessing over them) while making your plans: 

Average account size

Aim for an average monthly gain/loss of about 2-5% within a month. If you find yourself averaging more than 10%, you are trading too big for your current capital base. As well, if your monthly loss exceeds the 5% mark, it could also indicate that you are trading with too much risk even if your average return is positive. 

Risk to reward ratio

Always remember that the likelihood of you coming out ahead in your trades increases when you have a 1:1 or better than 1:1 risk/reward ratio. For example, if your stop loss limits are set at ten pips, and you aim for 20-30 pip gains per trade, then you should be stopping when your targets are met or exceeded. Doing so will only result in increased transaction costs without any proportional return increase. It can severely eat into profits, especially when prices quickly move against you, requiring more positions to be closed before hitting target levels. 

What kind of trader am I?

Every individual has a unique style of trading. The main four categories are:

Scalpers – traders who take advantage of market volatility by opening and closing trades within the same day, sometimes even within minutes. Day traders – these are traders that hold open positions overnight rather than just day to day positions. Some may take profits close while others keep it open until they have reached their targets. Swing Traders – Usually trend following strategies where trades are held for days to weeks at a time Position Traders – usually hold positions over several months to years unless price action dictates otherwise. 

How do I get started?

Every trader has traits that make them unique; however, there are some steps you can follow when starting to help you in your journey.

First, always make a plan and aim for consistency. Try using the 2% rule to learn how to increase your position size over time as you become more comfortable managing risk.

Start slow with low equity trades at first until you are confident enough to manage your mental capital effectively by avoiding significant losses or gains within a short time. Always look at the bigger picture when trading.

Do not let emotions affect your decision-making process because it only leads to mental, financial, and emotional trouble without any proportional increase in returns!

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