Trading Plans?

Hi,

before I start, I know that some of what I'm about to say will sound contreversial but I think this will make an interesting topic of conversation and I would like to hear peoples opinions on the subject.

I've spent far more time reading this forum than posting on it and all over the place I see people saying how important it is to have a trading plan and stick rigidly to it. I've seen people here write that without a proper trading plan you're doomed... and I've seen the same thing written in many books... but is this really the right thing to be telling newbies?

My argument is that without market experience you cannot learn and the best way to gain market experience is to get involved. Of course there must be some method to the madness but to begin with everyone is clueless and the best way to get unclueless is to get involved and learn.


This is my story... To begin with I was clueless. I read all the books, I read everything on here, but I had no market experience and looking back I was still utterly clueless... but I started trading. At first I got lucky and did well, but then I did badly, and then I did worse, and then I realised that I really couldn't afford to lose anymore money so I made I trading plan.

Looking back this trading plan was laughably simple but it was based on what I had learned/observed while losing money far more than what I had read and guess what.. for the next two weeks I didn't make many trades but I did make money most days.

So, then I got a little bit overconfident and began to think that trading was easier than it is and lost money... So I sat down, had a think and realised I hadn't been sticking to my plan. But While diverging from my plan I had noticed other things, learned more and altough I had lost money I was now able to make a better plan. I followed the new plan to the letter and made more money than before, more quickly (As I was taking advantage of more opportunities) but I also noticed that some things which made me money in with my old plan were now losing me money..

This cycle has repeated itself many times.. trade well - get overconfident - lose money - analyse- improve..

Now I'm doing ok but I don't have a trading plan. I guess that in the back of my mind I now know what works and what doesn't and so it could be argued that I have a plan but I just haven't written it down. I would find it hard to write a plan now though as so much depends on context. (e.g. the plan may say front run size or the plan may say go into size. Both are a good idea but only the context will tell you whch is the right choice at the time.)

Looking back I can see that without my first plan I lost money and it was only by making a plan that I started to make money... But had I made a plan right away based on what I had read I doubt I would ever had made anything. The first time I read about about Stochastics I can honestly say I thought I would be a millionaire within 3 years, but had I made a plan right there and then based on stochastics and given it a good time to see the results would I have done so well?.. and then if upon relaising stochastics aren't the way forward I had made a new plan based on RSI....

So my question is.. Should we advise newbies to make a plan and rigidly stick to it? Or by doing this are we stifling the learning process?

certainly a trading plan should be flexible, adaptive and respond to changes in market conditions.
I would suggest that having a plan that is too rigid is as counter-productive as not having one.

My suggestion for newbies would be to have a plan - for each single day of trading.
Decide what you're going to experiment with today as part of your learning curve, be that RSI bounce, Stochastic Pop, MA x, whatever.
Then stick with that for at least a day without distraction so that you are better able to evaluate a) the results, b) the lessons learned
Then if a long term plan still isn't right for you, create a new plan for a new day until you ARE ready for a proper plan.

You have illustrated why a plan and attempting to rigidly stick to it is important. By doing so you discovered new things about the markets and about yourself and the combination of your intended plan and a good diary would give you material for improving.

My question to you, Aspire, is "would you benefit by trying to create a plan for what you are now doing?"

I suspect that a new plan plus a good thorough journal would help you improve more than you will do without it. My plans are a continuous improvement thing. They also have to change if the market changes in ways that impact the plans. Continuous improvement methodologies the world over require both a base plan and good records to help you along the path.

One other thing I would assert is that you should test the changes from your plan before you trade them ... and again that works best if you have a plan (straw man that it might be) than if you don't. I think Mark Douglas said you should trade each iteration of your plan for a month before you make changes and I think that makes a fair bit of sense unless you discover that your plan was totally f***ed. Depending on how well you had observed the markets, your initial plans might need weekly revision for the above f* reason.

I hope you start a new plan; and new records. Best wishes and good trading.

nine said:

My question to you, Aspire, is "would you benefit by trying to create a plan for what you are now doing?"

I suspect that a new plan plus a good thorough journal would help you improve more than you will do without it. My plans are a continuous improvement thing. They also have to change if the market changes in ways that impact the plans. Continuous improvement methodologies the world over require both a base plan and good records to help you along the path.

One other thing I would assert is that you should test the changes from your plan before you trade them ... and again that works best if you have a plan (straw man that it might be) than if you don't. I think Mark Douglas said you should trade each iteration of your plan for a month before you make changes and I think that makes a fair bit of sense unless you discover that your plan was totally f***ed. Depending on how well you had observed the markets, your initial plans might need weekly revision for the above f* reason.

I hope you start a new plan; and new records. Best wishes and good trading.

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Both excellent answers, thank you.

Nine, Would I benefit from trying to create a plan from what I am doing now?

This is actually exactly what prompted me to start this thread. I was trying to to write a new plan.... and ended up posting here.

The honest answer is that if I looked at what I do and tried to break it down into a logical form that could be programmed into a computer then, no, I don't think I could. I am confident that I could I write a very good, short book on how to scalp the FTSE but i usually trade very quickly, without thinking, and i think sticking to a set plan would slow me down too much... but even without a plan it is times like these when I stop and have a good hard think about what I am doing and why, and how I might present these ideas to someone else that I improve the most. So I guess in you are are right, I would benefit from tring to make a plan from what I am doing now.. but if I wrote something down and stuck tightly to it I believe I would do worse.


As for your comments about trading each iteration of your plan for at least a month...

I suppose this must depend partly on the time frames you choose to trade for the timing but yes, i reckon you're right here. If you notice something new that could work test it out on paper and then incorporate into your live trading plan... However I still, personally think I learn most when it hurts most and that I would be a worse trader now than I am if I had paper traded more or stuck to my plans better.

P.s would just like to say that although I don't stick to a set plan and am advocating getting involved, i am not saying you should be undisciplined. DISCIPLINE IS KEY - you should always know why you are in a trade and why you would want to exit and stick to it.

Hi,
I find that my plan is always changing, and I make money with a plan, which I need to Follow to the letter.
I to find the best way to learn is with money on the line. so I have setup a seperate account that I test changes in, as the change to my plan might work fine with paper trading but until I have the full feeling of been in the trade with real money, I don't know if the emotional side of my trading will be ok with these changes.

All the best with building your plan.

hi,

P.s would just like to say that although I don't stick to a set plan and am advocating getting involved, i am not saying you should be undisciplined. DISCIPLINE IS KEY - you should always know why you are in a trade and why you would want to exit and stick to it.

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i think this is the key for developing a plan,it has to be based on the person to incorporate control over his/her individual personality,e.g.trigger happy traders might want to pay special attention to this area.a naturally disciplined person would have less of a need of a ridgid plan,imo.
Also just as important is the record keeping,keeping track of your trading is nescesary in order to formulate a good trading plan.
one thing i am carfull of personaly,being a newbie, is only including setups and strategies i know well,NEVER include hints ,tips or ideas from anywhere else unless iv tested /studied them myself.
happy hunting yawl.

You make a good point. I think T2W's trading plan template is an excellent start as it isn't just about the strategy and money management. It also addresses what happens when you **** up so you don't destroy your account. When a newbie does break the rules and then takes appropriate action, as outlined in the trading plan, they will then be able to step back and adjust their strategy. Without the trading plan, they are more likely to carry on trading until they cannot afford to trade any longer. So a plan may on the face of it be restrictive but in reality allows you to step back to be more flexible.

nine said:

Continuous improvement methodologies the world over require both a base plan and good records to help you along the path.


I hope you start a new plan; and new records. Best wishes and good trading.

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I think the ' keep good records ' is probably the hardest bit!

It's ok while things are going great, but as soon as you hit a few losers the ' keep good records ' go out the window - just at the time when it is probably most crucial to be keeping good records!!

Just my 2 old pennies worth!!!