A Trading Plan - You MUST Have One!

This is a discussion on A Trading Plan - You MUST Have One! within the Home Trader forums, part of the Trading Career category; =timsk It looks like a good start to me 1. I Trade U.S. equities, but only the 7-9pm GMT session ...

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Old Nov 21, 2004, 9:06pm   #16
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=timsk
It looks like a good start to me
1. I Trade U.S. equities, but only the 7-9pm GMT session as I have a day job.
2. I wish to day trade as the risk of exposure to events / gaps etc. overnight is too great.
3. Ideally, I would make 1-2 trades per evening session, with the aim of capturing the the bulk of the late move of the day.
4. The primary goal is to have a plan that I know works for me and that I can execute. In other words, I want to establish that I have the discipline to 'plan the trade and trade the plan' consistently, day after day. Profits, although very welcome obviously, are secondary to this goal.
Tim.
It looks like a good start to me, although even more specifics will be needed.

"1. I Trade U.S. equities, but only the 7-9pm GMT session as I have a day job."
Which stocks? How will you choose them? exactly.

"3. Ideally, I would make 1-2 trades per evening session, with the aim of capturing the the bulk of the late move of the day. "
How will you determine what the "bulk of the late move of the day" is likely to be?

PS. I'm no expert here, these are just questions that I know I would have to answer myself, on my own trading plan.
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Old Nov 21, 2004, 9:07pm   #17
 
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Writing a plan is exactly what I've decided is missing from my "trading". I had the sudden realisation that several things are going wrong and that its down to lack of discipline.
Typical screw ups include..
  1. Totally inconsistant: sometimes I trade, sometimes I don't and this is not due to lack of opportunity.
  2. Each day could be a new pattern/distraction ,indicator farns-barns etc...
  3. 1 great trade, one small loss, then avoid trading
  4. no record keeping.
basically total lack of discipline and planning and so my brain and emotions start filling in the gaps. I realise that if I want to stand a chance of success at trading then I need to take it seriously.


So the outline I have at the mo goes something like this...
Overview
basic outline of the goals and system used, markets etc..

Daily Activities
Pre-Open: chart setup, check for announcements/news that may impact the day.
Trade: Entry rules, stops, money management, exit rules.
End of day: Update P/L, trade logs and review trades focusing on adherence to rules/plan, emotions and action post exit.

Weekly Activities
Trade review: trading and plan, P/L
Education: books, webpages
Research: historical action, new entries etc.

Monthly Activities
etc...

Golden rules:
Max risk per trade, day, week exceeded then STOP
Never change trading plan mid day only ever in the cold "rational" post market.
Plan will evolve but keep revisions.
Focus on good trades, not just profitable ones.

I'm not a total data freak but unless you record what you've done how can you asses your progress.
thats my 3 pips worth.

This leads me to another suggestion that I probably need a "learning plan" first.
Sven.
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Old Nov 21, 2004, 10:44pm   #18
 
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1. I Trade U.S. equities, but only the 7-9pm GMT session as I have a day job.
2. I wish to day trade as the risk of exposure to events / gaps etc. overnight is too great.
3. Ideally, I would make 1-2 trades per evening session, with the aim of capturing the the bulk of the late move of the day.
4. The primary goal is to have a plan that I know works for me and that I can execute. In other words, I want to establish that I have the discipline to 'plan the trade and trade the plan' consistently, day after day. Profits, although very welcome obviously, are secondary to this goal.
Tim.

Hi Tim I have a trading plan only developed after spending some time with a full time Nasdaq Trader. I had a copy of his plan which is 40ish pages and have slowly been converting it to my way of trading but using his plan as a template.

The Plan is made of the following subjects and has detail around each one. I read the plan every day before I trade as it puts me in the right mind set to trade and helps me to relax in my trading.

The subjects it covers are a) Max Dollar loss, risk / reward, etc. b) Daily prep before the markets open and what to do during the trading day i.e. when to look out for reversal times etc. c) My mind set ( the most important one ) and d) Trade pattern setups.

To give you an example I have posted below a copy of the plan we have for the setup you would be looking to trade in the eve's.

There are 2 ways to find stocks to setup as per this plan. First as my "mentor" would do is from his Nasdaq universe of about 50 stocks scrolling thru his stock list with his sharp eyes looking during the lunchtime phase i.e. 5.30pm - 7.00pm-GMT for stocks setting up as per the plan below. These stocks are the big Nasdaq Hitters i.e. NVLS, KLAC, APPL etc. Only problem I have found with this is it can limit you some days to no stocks setting up.

The 2nd way is the method I use and I have a scanner programmed to scan the whole market (Nasdaq, AMEX, NYSE) to find me stocks setting up as per the trade setup below. From here I will then eye ball the charts looking for the best setting up stocks and making a short list and long list.

I hope this setup below really gives you something to build on in your search.


LATE DAY BREAKOUT

· Setup
o Daily favours direction of trade
o Above/below open and close
o Bases near the extreme for at least 90 mins
o Breaks the base after 2pm

· Entry
o Above/below base

· Anticipatory Entry
o Enter when reversal bar occurs on break of opposite extreme, which could be MM shakeout

· Stop
o Above/below base, allow for MM shakeout

· Target
o First target is next Support/Resistance level
o Second target is previous pivot on next higher timeframe
o Third target is previous pivot on next higher timeframe
o Or you can trail on next higher timeframe
o Small portion can be left to hit new extremes

· Management
o Day to Swing
§ Close half the position on target
§ Close half the position if at 3:00 Reversal and first target has not been met, or trail on 1 min chart
§ Close balance as per targets
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Old Nov 21, 2004, 10:57pm   #19
 
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It seems to me that there are 4 basic steps in a trading plan:

1. Concept:

This is the general overview of your system, where and over what timescale you are going to employ it. It should have sufficient clarity to ensure that 100 different traders reading it will unerringly look for the same type of set ups in the same instruments (and the same market).

2. The Set Ups:

This is a more detailed description of your set ups, sufficiently detailed and clear that those same 100 traders will all identify the same ones as potential trades.

3. The Trading Rules:

These are the objective and detailed rules of your trading. They should include any conditions that must apply before a trade may be made, the entry point(s), the position size, the loss exit point and the profit exit point(s). They should be sufficiently taut that all our 100 traders who read them would do the same thing at the same time.

4. Evaluate the Results:

Evaluation should be objective, comprehensive and continuous.

All imo of course . Did I miss anything?

Good trading

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Old Nov 21, 2004, 11:02pm   #20
 
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As I have said that YOUR mind set is the most important thing in trading imho I have posted a copy of the saying that is in my trading plan and posted on one of my monitors on my trading PC.

4) I AM A SNIPER. I WAIT IN THE SHADOWS LOOKING FOR THE PATTERNS AND SET-UPS AS PER MY TRADING PLAN. I WILL NOT MAKE TRADES UNLESS THEY SET-UP AS PER MY PLAN AND I WILL NOT MAKE IMPULSE TRADES. EVERY TRADE WILL HAVE A PLAN

some people may laugh at the above but this is a dog eats dog world and that post it note has kept me calm, sane and more often than not out of trouble.

Listed below is another excerpt from my plan to help me in the trading day.

BEFORE TRADING


Today I have 2 choices:

1. Trade unemotionally and stay stress free
2. Trade emotionally and lose money

I have chosen step 1 for today, therefore I will:

1. Have a well laid out trading plan for my patterns
2. I feel fit and healthy
3. I will follow this plan in a very disciplined manner
4. I will be patient and wait for the right opportunities instead of being impulsive and losing money
5. I will take each trade one at a time and will take regular breaks

Only 3 things can happen today:

1. I reach my target and then trade until first loss
2. I reach my daily stop and therefore stop trading for the day
3. There are no opportunities so I don’t trade today


The power minute. This is where I join my conscious and sub-conscious mind together to make a powerful and winning team with which to trade. I visualise myself and my team being successful day traders making a living from it.

Some of the plan has personal things in it to do with my family and the reasons or motivation as to why I have to be a good trader, thus i am not comfortable with posting it here for all to see. I hope you can understand this but any questions then fire away and you are right. The time I became profitable trading US stocks was when I developed a trading plan and stuck to it!!!

Hope that helps.
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Old Nov 21, 2004, 11:12pm   #21
 
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scooby

not laughing - my post it note at the moment says "stick to your plan stupid"

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Old Nov 21, 2004, 11:57pm   #22
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I always considered a system as being a set of strict rules telling me how much to risk, what and when to trade, stop loss positioning etc. I've never really thought about the definition much before. Maybe what I call a system is a kind of plan. In alexander elders book he mentions an action plan which is writing down you entry conditions, what conditions you will back off a trade, if (and when) you will increase the trading position and when you will exit. With the purpose of having it written down as a plan for each trade even before you enter the trade, so you wont change half way through on a whim. A defense against allowing greed and fear to take over logic. But the 'action plan' was very much to do with the practicalities of trading, planning a particular trade!

There is also another method called a decision tree where it sets out a set of rules stating clearly your trading entry and exit rules.

But your idea of a plan is to encorporate everything to do with trading? With goals to accomplish, set periods for particular activities, like accounting, learning, research, testing.. as well as trading? Making trading so business like it starts to take on the mantle of a self-employed occupation?
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Old Nov 22, 2004, 12:34am   #23
 
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Originally Posted by pkfryer
But your idea of a plan is to encorporate everything to do with trading? With goals to accomplish, set periods for particular activities, like accounting, learning, research, testing.. as well as trading? Making trading so business like it starts to take on the mantle of a self-employed occupation?
Thats the general idea PK.

If you want to earn a living from trading then the plan has to contain everything so you can become self employed.

Anything less and its a hobby and most hobbies cost money, not pay you money. ( Thats only the way I see it )
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Old Nov 22, 2004, 8:07am   #24
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In my view a system will tell you when to enter and when to exit a trade. A trading plan would include how much to risk on each trade based on account size, how much market exposure you have based on market volatility etc.


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Old Nov 22, 2004, 8:55am   #25
 
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Hi Paul,

And I agree with you on that.

Mine just goes deeper to suit my needs to help combat my mind set problems which others might not have.

A trading plan is a personal thing and thus if you put all of ours together and compard them they would all be different but the key is they work for us and thats what matters. The excerpts above are from my trading plan and yes there is a bit about risk / reward, market exposure etc I just wanted give an idea of what is in mine, but in no way would say mine is better it just works for me.
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Old Nov 22, 2004, 11:22am   #26
 
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I'd be inclined to agree that a strategy or system sets the broad rules for trade selection, entry criteria, stop loss / position sizing. general management rules. From this a very simple plan would be implemented for each individual trade relative to the type of stock, ie volatile tech, or steady blue chip, the prevalent market conditions . The plan will vary for each entry and in its simplest formw ritten down would consist of for example;
Entry 36.55
s/l 36
t1 37.25
t2 38
s/l to b/e on price of 37 and trail at .50c thereafter. The trade is then managed within the framework of the strategy, but with the flexibility of the plan.
Now that would be trade specific because it would not always be appropriate to trail a s/l 50c behind the stock. similarly trade size would be specific to the risk of the play general market conditions, and size of stop loss.
At least that's my interpretation.
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Old Nov 22, 2004, 2:34pm   #27
 
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As for what I see as my general trading strategy,the following framework underlys all my decisions.


My Trading Strategy.

Stocks on Nasdaq, NYSE, and AMEX. (including index trackers)
Trading period, all day, everyday. (9:30 - 16:00 EST)
Timeframe Intraday, and Swing 2 - 10 days.
Screening criteria:
Only stocks over $10 intraday (unless familiar with the stocks behavior. There are 1 or 2
sub $10 stocks which I watch constantly and am very familiar with their movements.)
Minimum daily volume 500,000 for intraday.

Opening trade
No trades initiated in first 15min.
No trades initiated between 11:45 - 12:45 EST and caution before 2:00pm
Risk / Reward minimum 1:2.
Stop loss maximum 2% on any one trade, lot size adjusted
Caution in initiating trades after 3:00pm EST
Caution initiating trades prior to economic news

Setups
Varied. I trade exclusively from charts and will trade most of the common chart patterns
if market conditions favour the direction of the trade (intraday). As a general rule I watch
15min charts though I will dial down to 5min and up to 60min, daily and weekly for confirmation
and support resistance levels. The only indicators I use are volume for everything, and
occaisionally cci on the main index trackers intraday, and stochastics for swing trades.
Intraday I watch advance / decline, volume breadth, and Trin trend.

Special Setup
Opening gap trades, must be supported by significantly higher than average volume
Entry trigger will be a break of the high, (gap up) or low (gap down) of the first 15min candle
Initial stop loss 10c beyond the high or low.

Trade Management.
Intraday.
Any trades initiated before 10:00am EST will be closed prior to that time if category A or B
economic news is due, unless stop loss is above break even though in most cases I will close.
1/2 off into first price target and stop to breakeven or higher if not already. 1/2 off into
11:00am reversal period. 1/2 off at any reversal pattern Exit all morning trades by 11:45am
either by active execution or exceptionally tight stop.
Open positions approaching 3:00pm 1/2 off and tight stop, consider closing.

Swing Trades.
No swing trade held through earnings announcement or mid-quarter update.
Consideration should be given to the merrits of opening a trade too close to above announcements.
Stops moved daily once stock is moving favourably 10 - 15c below previous days low.
At least 1/2 off at first price target.
1/2 off on any daily chart reversal pattern consider exiting position.
Unfavourable gaps. If stock gaps beyond stop, adjust stop 10c - 15c abouve or below first
20min high or low. Look to trail stop quickly if stock recovers.
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Old Nov 22, 2004, 3:13pm   #28
 
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Trading Plan.
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Old Nov 22, 2004, 3:32pm   #29
 
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Fantastic responses from all.

What started as some funny and irreverent replies, this thread has matured into something quite special.

I dont think I have seen so many consistently valuable posts.

Keep it up, guys.

PS: I dont have a plan, otherwise I wouldnt be stuck here working for someone else at the moment.
( only saving up for my next attempt !! )
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Old Nov 22, 2004, 3:51pm   #30
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Originally Posted by trendie
PS: I dont have a plan, otherwise I wouldnt be stuck here working for someone else at the moment.
( only saving up for my next attempt !! )
may as well shove this one in your mixing pot as well then trendie

looks like you've got a fair bit of homework to engage in huh, cobbling something together from all ya links!!


http://www.manfinancial.com.au/docum...Plan/index.asp
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