A Trading Plan - You MUST Have One!

[timsk]

On the 'General Trading Chat' forum there is a thread started by sun123 entitled 'Lost Trading'. In it, dbphoenix stressed the importance of having a trading plan. A quick search doesn't throw up any threads devoted to this important topic, so I thought I'd start one. (If it is covered elsewhere, apologies - and could someone please post a link).

dbphoenix' post on the above mentioned thread reads:
. . ."I rarely find beginners who have trading plans. And by "trading plan", I mean something that's detailed, specific, tested, and profitable. Instead, they have what is at best a collection of ideas that seem good and which they try out, often with real money, in order to see what happens. This is not a plan.
Anyone who trades with a plan is leagues ahead of those who don't, which is nearly everybody. I suppose no one bothers with it because it's work. But plan beats no plan every time".

So, the objective of the thread is to provide a template by which all traders - regardless of instruments traded, time frames, brokers etc. - can create a professional trading plan which can form the very bedrock of their trading business. Contributions from any traders who have a 'detailed, specific, tested, and profitable' trading plan would, IMO, be a huge help to those of us who haven't!

Tim.

 

[alliance]

A Trading Pan - You MUST Have One!

......especially if ur "Pan(ning)" for Gold :cheesy:

 

[bracke]

[

......especially if ur "Pan(ning)" for Gold :cheesy:

Now, now alliance. No need to give timsk a panning just for the L of it.

Regards

bracke

 

[timsk]

Bracke - :cheesy:
Cheers alliance, title now edited!
Correction, I can edit the post, but not the thread title. Mod's, - can you do this for me please as it does look rather silly!
Cheers,
Tim.

 

[trendie]

Trading Plan - strategy to apply to extreact money from the markets.

Trading Pan - where your money goes down if you dont have one of the above :cheesy:

 

[bracke]

timsk

I suggest that you do not let the mickey taking posters get to you. Just remain deadpan.

Regards

bracke

 

[TraderPattern]

yes, and whatever you do -- don't panic

 

[sulong]

I can only speak from my own experience, so here goes.
I think the first step to creating a trading plan, is to "adopt" a few truths on faith.
1. A trading plan will make the act of trading simpler, than trading with out one.
2. A trading plan will limit our opportunity to make bad trades.
3. A trading plan will not allow most psychological issues to take root.
( I'm sure there are others, but it's early sunday morning, soo..)

The second step.
You have to choose, and stick to those choices.
Where is the best place for your setup to present itself?, can you spot that place before the price gets there? If you can, then "choose" only that place for possible entry's.

Choose only a limited number of setups. (1 or 2) (Don't worry, you'll discover the principals at work with those 1 or 2, and Begin to see those principals at work over and over)

Choose your goals.
How many trades do you want to make in a day, a week, a month?
Choose how you want to measure success. By your own behavior? by the amount of money you won/lost?, by win/lost %?

I have to go now, the kids awake.

 

[sulong]

I can only speak from my own experience, so here goes.
I think the first step to creating a trading plan, is to "adopt" a few truths on faith.
1. A trading plan will make the act of trading simpler, than trading with out one.
2. A trading plan will limit our opportunity to make bad trades.
3. A trading plan will not allow most psychological issues to take root.
( I'm sure there are others, but it's early sunday morning, soo..)

The second step.
You have to choose, and stick to those choices.
Where is the best place for your setup to present itself?, can you spot that place before the price gets there? If you can, then "choose" only that place for possible entry's.

Choose only a limited number of setups. (1 or 2) (Don't worry, you'll discover the principals at work with those 1 or 2, and Begin to see those principals at work over and over)

Choose your goals.
How many trades do you want to make in a day, a week, a month?
Choose how you want to measure success. By your own behavior? by the amount of money you won/lost?, by win/lost %?

Choose your time of day, in which you will enter/exit trades. IE. do you work for the man? If so, during the whole market session? If not, which portion of the session can you be active?
Which market is active at the time you have available to enter/exit trades?

Finding your market niche does not happen by cosmic intervention, it happens by your own design, your own willingness to do the work, and to limit the scope of your focus.

 

[alliance]

I apologise in advance that I cannot give due credit to the author/provider of the following 3 documents...coz I don't recall exactly where I came across them tho I'm pretty sure I downloaded them from a T2W thread a couple of months ago....

 

[timsk]

:cheesy:
One simple little typo' and out pours a whole Pandora's box of jokes. I'm delighted to bring a little cheer into an otherwise dull Sunday afternoon for you all, but now I'm worried that I'm the source of a pandemic affecting the entire T2W community. But this is probably just a mild form of panophobia.

Okay, moving on (please!); take it as read that a trading plan is needed, essential even.
As I've started the thread, I'm happy to be a guinea pig so to speak; so here is where I'm coming from. (This is largely in response to Sulong's comments).
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.

 

[pkfryer]

Whats the difference between a trading plan and a trading system?

 

[SvenFoster]

Whats the difference between a trading plan and a trading system?

can't speak for the others pk but for me and system is the approach used to determine entry/exit obviously moneymanagement etc...

A plan brings to the table the above system information as well as, Goals, trading logs, daily tasks, weekly and monthly tasks. Information such as sulongs like when will you trade, when will you determine its going wrong, Education etc.

I think the key thing a plan brings is discipline and focus. Others may disagree.

-ps spell checker doesn;t appear to be working sorry

 

[Gardan]

timsk,
Got to say ,what a great thread, I have been working hard over the last four months on this subject. I hope it develops to it's full potential and we all learn something from it, good luck.

Gardan

 

[Roberto]

Whats the difference between a trading plan and a trading system?

To me, a trading plan is like a business plan for any business. Trading is a business and every business needs a business plan. To me, a "trading system" relates only to the "daily operations" aspect of the business; it explains the operational details of my trades. not the "overall picture". When I'm using a "trading plan" I've got my Director of Daily Operations hat on, not my Managing Director hat or my Financial Director hat.

 

[sulong]

=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.

 

[SvenFoster]

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.

 

[Scooby]

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

 

[barjon]

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

jon

 

[Scooby]

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.