The Difference Between a
'Plan for a Trade'
and the 'Trading Plan'
This will be a very brief article, outlining what, to some, may be
a confusion between the 'Plan for a Trade' and the master 'Trading Plan'. The
'Plan for a Trade' is comprised of the four critical elements that I consider
necessary before initiating a specific trade, as outlined in the free article
Kane Trading on: The Critical Elements of a Trade.
The sole function of these criteria is to help you get into a specific trade,
and manage the trade once you are in it.
Issues like how much of your capital you
might use in any given trade, how much risk you will take in any given trade,
what trading vehicle(s) you might use (futures, options and/or option
combinations, single stock futures, stock, etc.), and so on, are not addressed
at all in these criteria. This is a very limited plan, a plan to simply decide
that the time is now to take this trade, based on pre-decided parameters, and
manage it accordingly.
Where do these pre-decided parameters come from? They come from the
master 'Trading Plan'. Everything comes from the 'Trading Plan', ultimately.
The 'Trading Plan' is all encompassing. It is a business plan for your trading
business. It covers everything involved in your trading business. What your
goals are, what your means and methods are to achieve those goals, what your
resources are and how you will use (and risk) them, everything. As I have said,
it is all encompassing.
No business should be run without a business plan. With trading as
a business, it's usually referred to as the 'Trading Plan', but it is a
business plan for your trading. Hence, one small aspect of this 'Trading Plan'
would be how you finally decide to initiate a specific trade, and manage it.
This 'Plan for a Trade' would, then, be one small section of the overall
One thing you must take into account is that the greater the scope
of any 'outline', the less detail it will naturally have. So the master
'Trading Plan' will be an overall outline of every aspect of your business. I
suggest that you read a few books on general business plans for more
information on how to construct your outline.
Once you have this outline, you must then
clearly fill in the details of how you plan to execute each and every aspect.
One of the aspects in my plan is how I pick my spots and make my decisions on a
given trade, and how I manage the trade once I get in. Hence, I created, for
me, Kane Trading on: The Critical Elements of a
At this point it should be clear how 'The Critical Elements of a
Trade' is just a small part of my overall plan. I also have plans for how much
capital I will use for any given trade, plans for how much risk I will take in
a given trade, plans for how I will deal with a blown-out stop which causes a
greater loss than planned, plans for business expenses, and on and on. Each is
a small part of the entire plan.
Hopefully, this article has cleared up any confusion
caused by the similarity in my choice of the terms 'Plan for a Trade' and
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