Trading Plan is the record of the methodology and the trading strategies used to identify trading opportunities and to pick securities for trading based on such a plan. A trading plan has many crucial details like the
-type of securities to be dealt in,
-the maximum risk that can be absorbed by the trader,
-key trading strategies,
-maximum position size,
-target sectors or segments within the sector, etc.
Merely drafting a trading plan is not enough, traders need to adhere to the same firmly. Any deviations from the trading plan may potentially result in huge losses. Therefore, it is imperative to draft the trading plan rationally and ensure that it meets the financial objectives as well as the risk-return expectations of the trader.
A trading plan needs to be followed strictly to create the trading discipline and one should not risk their corpus till the time a proper trading plan is chalked out by the trader.
