Price Action Trading: How to Create a Solid Trading Plan

A Solid Price Action Trading Plan is vital to have when trading the markets. 

After digging Navin's brain for months and carefully watching his recent webinar I can finally bring you this article which will clearly outline how you can create a solid trading plan too...

This is where Navin spotted his students going wrong

Most traders only think that they plan their trades, but they are actually only focusing on the trade entry. They are looking at where they can enter without thinking about what happens next.

Think of Bitcoin, with all the news about Bitcoin recently everybody wants to get in. They might not know much about Bitcoin (but they heard stories of others making money from it) and they probably have no idea what to do with the Bitcoin once they have it, but it sounds good so they want in. 

This year's Bitcoin rally isn't even a record. In 2013 Bitcoin jumped 5,000%. In 2014 however, it lost 60% of its value. But I'll have more about this in my upcoming Bitcoin article.

Let's find out what the 3 stages of the trade plan are...

The 3 Stages of a Trade Plan

1. Trade Research

99% of the people who come to Navin are asking how to get in? Where to enter the market?

But that's not trading, at least it's not the way Pro traders think and act.

The research part is saying "I like the way EUR/USD is pulling back, let me check the GBP/USD, NZD/USD and AUS/USD etc and pick the best one." But does that guarantee a profit?

The moment the trade has been entered the brain is no longer the same, it's been hijacked. Your risk capability goes out the window and you can only see the profit. 

So what else do we need to do...

2. Trade Management

Trade Management may be Stage 2 but the planning for trade management still needs to be done before you enter the trade.

Trade management is knowing any of the possibilities of harm that can come during the course of your trade, and what you need to do in these places.

What does trade management look like?

Let's say the market is going up and it pulls back like in the image above. There is a Support and Resistance area at the blue dotted line which looks like the area where prices could start to rise again.

Then we see that the price is holding around this area. It looks like that's it, that's where I need to hit the buy (Green circle).

So is that it... Do you just hit the buy and hope for the best?

No, and this is where your trade management comes into play...

You mark out your stop loss and take profit. Then you mark out where you may have issues. There are 3 areas of potential issue. The first issue is the top of the range marked 3. The second issue is the resistance marked at number 2 and the third issue is the resistance marked at number 1.

As much as you want it to, you know it's not going to go in one sharp line up to your take profit. So, you need to know and have planned what you are going to do at each of these areas. 

Finally, we need a plan to exit...

3. Trade Exit

There are 3 types of trade exit that you need to understand.

Trade Exit 1. If the trade goes into full profit

Trade reaches your take profit. Not much more to this exit.

Trade Exit 2. If the trade goes into partial profit

What is partial profit you ask?

You enter a trade and it starts by going in the right direction and things are looking good! It's on its way to your take profit and then BAM, it turns around and you've lost everything. You were in profit but then you lost. 

When the trade is going our way we only see the $$$. Then after it turns around we think "Why didn't I close it?", "I should have closed it". We look back at it and realize there was a resistance issue that we should have taken note of at the blue dotted line. We make excuses. 

What if we had closed and it kept rising? It went past our take profit. We think, "Damn, why was my take profit so low" and the next time we make it bigger. We are planning our exits on hope, or fantasy instead of planning them strategically.

This is a big part of Trading Psychology. 

Trade Exit 3. Reversal

You might be asking why we should plan for a reversal, isn't that like planning on failing?

But it's not like that. 

Usually when you enter a trade and straight away there is a reversal and it's down at your stop loss you panic. Because you didn't prepare for it. 

What we mean by planning for it is that, if there is a reversal we can see and try understand why there was a reversal. 

Has the territory turned from buyers to sellers?

Maybe with this extra information if you can read it without panicking you can take advantage of it. 

Let's sum it all up...

Conclusion

To create a Solid Price Action Trading Plan you need to focus on a lot more than just the Trade Entry.

A solid trading plan consists of 3 Key Stages: Trade Research, Trade Management, and a Trade Exit Plan.

These need to be worked on before you enter the trade. 

You should prepare for several scenarios that could happen and then make a plan of action for each scenario. This will make it easier to do the right thing because you planned this out BEFORE you had any emotions coming into play.

Check out a real-life example where Navin explains one of his own trades from 29:30 in the Webinar video.

Will you start using this trading plan? Let me know how you plan your trades in the comment section below.

Don't forget to sign up for Navin's next Live Webinar in the sign-up form below.

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With Pip Love,

Garry at Urban Forex