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Transaction plan is a well-defined strategy of expectations and risk management in the market with the aim of efficient trading. At the beginning a career, a plan may not be of utmost importance because the trader is still learning the market. If at all a new trader develops a plan, it will probably involve copying signals from expert traders; let us call a beginner transaction plan.

It comes to a point in a trader’s career when copying signals and following other professional traders can be said to be substandard. After trading with the help of a professional trader for a while, it is expected that a trader should have gathered some experience and understand the place of difference in market views, unique thought process, market experience, and risk tolerance level. At this point, a trade is expected to develop his/her own transaction plan with respect to his/her unique trading preferences.

WHAT IS THE NEED FOR A TRADING PLAN?

A famous adage has it that if you fail to plan, then you have planned to fail. That is the summary of the essence of a trading plan in the career of a trader. In simple terms, a plan is the map of all the processes involved in a trade. A trading plan addresses what should be done in a particular trade considering the circumstances surrounding that trade. It also makes special reference to when a trade action should be carried out for anticipated favourable outcome of a trade, and how it should be carried out.

A proper transaction plan should involve risk management strategies to help minimise risk exposure to trades; something that is inevitable in the market. It is a fact that one of the risks in the market is the biased nature of human beings which makes it unsafe to trade the market profitably. These biased judgments are as a result of natural emotions and sentiments exhibited by human nature in issues related to finances; and which are not good for trading the market. As a result of this human nature, the need for transaction plan cannot be overemphasised. It can remove any bad decision-making at the heat of the moment if the trader is disciplined enough to stick to his/her trading plans.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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