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?
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?
pkfryer said:
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 )
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.
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.
roguetrader
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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.
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.
roguetrader
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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.
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.
trendie
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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 !! )
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 !! )
trendie said:
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/documents/tutorials/DevelopTradePlan/index.asp
timsk
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Thanks Everyone
There are a lot of useful replies here, thanks for all the responses. I'm not going to reply to those of you who addressed your post to me in person as I'm anxious to de-personalise the thread. Moreover, in retrospect, I don't think it was helpful of me to start talking about myself and what I trade, when and why etc.
When I started the thread, the vision that I have in my mind's eye is that collectively we arrive at a document - 'The Trading Plan' - that newbies and seasoned pro's alike could use with minimal tweaking. I accept fully the drawback with such an approach is that the content may be diluted to appeal to the lowest common denominator but, even so, potentially it could be a valuable resource and a good starting point for those of us who would not otherwise have a clue where to begin. To use a cooking analogy, - say baking a loaf of bread, we want a basic recipe that everyone can use regardless of their baking experience. At the moment, we have quite a variety of different ideas on the subject (as is to be expected) which range from the 'macro' (basic ingredients: flour, water, yeast etc.) down to the 'micro' (. . .'a tiny extra pinch of salt is what makes the perfect loaf for me'). Whilst such disparate contributions are all valid, they are nonetheless somewhat confusing! How does someone without a trading plan make sense of all of this?
The solution that I propose is this. I will attempt to pull together the various strands of the thread into just such a document. I'll do it in Word and call it Trading Plan - 1st draft. This will provide the thread with focus and enable people to post their observations. Things like what's been omitted, what's not clear and how it could be improved etc. With this feed back I can then update the document and put forward a 2nd draft for members' consideration. Ultimately, between us, we will create a template which will enable all traders to produce their very own Trading Plan which is 'detailed, specific, tested and profitable'. It will take me a while to produce the first draft; in the meantime, any feedback on this suggestion would be most welcome.
One last thing, I apologise in advance to those of you that I will upset because I appear to have ignored your contribution. I hate offending people, but I fear that in an exercise such as this, that it is almost inevitable. Sorry!
Tim.
There are a lot of useful replies here, thanks for all the responses. I'm not going to reply to those of you who addressed your post to me in person as I'm anxious to de-personalise the thread. Moreover, in retrospect, I don't think it was helpful of me to start talking about myself and what I trade, when and why etc.
When I started the thread, the vision that I have in my mind's eye is that collectively we arrive at a document - 'The Trading Plan' - that newbies and seasoned pro's alike could use with minimal tweaking. I accept fully the drawback with such an approach is that the content may be diluted to appeal to the lowest common denominator but, even so, potentially it could be a valuable resource and a good starting point for those of us who would not otherwise have a clue where to begin. To use a cooking analogy, - say baking a loaf of bread, we want a basic recipe that everyone can use regardless of their baking experience. At the moment, we have quite a variety of different ideas on the subject (as is to be expected) which range from the 'macro' (basic ingredients: flour, water, yeast etc.) down to the 'micro' (. . .'a tiny extra pinch of salt is what makes the perfect loaf for me'). Whilst such disparate contributions are all valid, they are nonetheless somewhat confusing! How does someone without a trading plan make sense of all of this?
The solution that I propose is this. I will attempt to pull together the various strands of the thread into just such a document. I'll do it in Word and call it Trading Plan - 1st draft. This will provide the thread with focus and enable people to post their observations. Things like what's been omitted, what's not clear and how it could be improved etc. With this feed back I can then update the document and put forward a 2nd draft for members' consideration. Ultimately, between us, we will create a template which will enable all traders to produce their very own Trading Plan which is 'detailed, specific, tested and profitable'. It will take me a while to produce the first draft; in the meantime, any feedback on this suggestion would be most welcome.
One last thing, I apologise in advance to those of you that I will upset because I appear to have ignored your contribution. I hate offending people, but I fear that in an exercise such as this, that it is almost inevitable. Sorry!
Tim.
Here’s some stuff I am researching at the moment. Hope it helps?
After 4 months of research, some stuff I think I have learnt.
Where the research derived from.
T2W : Invaluable if you can cut the wheat from the chaff. (Not saying I can)
Books: what I liked the most. (Mostly recommended by the top guys on this site, you know who you are but thanks again.) Training courses.
I make no apologies for the below being from a book or what members have said on these boards just take it as a compliment. If you don’t see something you said please don’t be annoyed I am probably still working on it.
Copywrite issues: my own words are below and just some stuff I have remembered anything that sounds the same is pure coincidence.
The trading plan has as we know multiple parts and I do not think it can be stressed how:
A, important it is….don’t trade until you have one and it has been tested and then if test ok, small amounts to begin with in live markets as the physiological aspects of trading with real money will play merry hell with the most robust trading plan.
B, Keep it simple. If it is to complicated you may find it will cause too many problems and lead to diverting from the plan.
C, Think small, not BIG (little acorns and all that)
D, Give the plan a chance to work (say 20 trades at a time) and then reassess how it is doing. Obviously keep assessing even a winning plan as markets I believe do change from time to time.
E, be patient (can not tell you how many people on T2W have given me and others that great advice)
F, Learn how to place an order/trade, with all your stops-limits whatever in place before you enter the trade. What is a limit order? What is stop loss order? Must learn before you trade. The trade should be made without fear or worry.
Example (not mine but one I am researching)
1, the trade entry must be precise. Harder said than done, I think. (I am struggling with this one, but persevering to find one that suits)
2, Learn to take what the markets gives you a small profit is better than a loss.
I am practising scaling out on paper and quite like this idea. Any views would be great. I also agree learning to take profits may be one of the hardest lessons to learn.
3, except fully that your trade is going to cost you money (business expense) to find out if you are right at that moment in time. Make sure your stops allow you to go onto the next trade to find out if the next trade is right.
I.e.: if you accept that each of your 20 trades could cost you £100 pounds/$ with each trade you make at a loss, that would cost you £2,000 pounds ( 20x £100=£2,000) if every trade went against you.
The idea (not mine, I wish) that you will be wrong 20 times in a row is unlikely as is being right 20 times in a row. Truth is you don’t even need to be right 10 times. You don’t even need to be right 8 times if you scaled out a bit and took some profits when they presented themselves.
Keep it simple!!!!!!!
I stop rambling on now, sorry if I have bored you.
None of the stuff above is mine just things that interested me in my research. Still trying to put it all together.
After 4 months of research, some stuff I think I have learnt.
Where the research derived from.
T2W : Invaluable if you can cut the wheat from the chaff. (Not saying I can)
Books: what I liked the most. (Mostly recommended by the top guys on this site, you know who you are but thanks again.) Training courses.
I make no apologies for the below being from a book or what members have said on these boards just take it as a compliment. If you don’t see something you said please don’t be annoyed I am probably still working on it.
Copywrite issues: my own words are below and just some stuff I have remembered anything that sounds the same is pure coincidence.
The trading plan has as we know multiple parts and I do not think it can be stressed how:
A, important it is….don’t trade until you have one and it has been tested and then if test ok, small amounts to begin with in live markets as the physiological aspects of trading with real money will play merry hell with the most robust trading plan.
B, Keep it simple. If it is to complicated you may find it will cause too many problems and lead to diverting from the plan.
C, Think small, not BIG (little acorns and all that)
D, Give the plan a chance to work (say 20 trades at a time) and then reassess how it is doing. Obviously keep assessing even a winning plan as markets I believe do change from time to time.
E, be patient (can not tell you how many people on T2W have given me and others that great advice)
F, Learn how to place an order/trade, with all your stops-limits whatever in place before you enter the trade. What is a limit order? What is stop loss order? Must learn before you trade. The trade should be made without fear or worry.
Example (not mine but one I am researching)
1, the trade entry must be precise. Harder said than done, I think. (I am struggling with this one, but persevering to find one that suits)
2, Learn to take what the markets gives you a small profit is better than a loss.
I am practising scaling out on paper and quite like this idea. Any views would be great. I also agree learning to take profits may be one of the hardest lessons to learn.
3, except fully that your trade is going to cost you money (business expense) to find out if you are right at that moment in time. Make sure your stops allow you to go onto the next trade to find out if the next trade is right.
I.e.: if you accept that each of your 20 trades could cost you £100 pounds/$ with each trade you make at a loss, that would cost you £2,000 pounds ( 20x £100=£2,000) if every trade went against you.
The idea (not mine, I wish) that you will be wrong 20 times in a row is unlikely as is being right 20 times in a row. Truth is you don’t even need to be right 10 times. You don’t even need to be right 8 times if you scaled out a bit and took some profits when they presented themselves.
Keep it simple!!!!!!!
I stop rambling on now, sorry if I have bored you.
None of the stuff above is mine just things that interested me in my research. Still trying to put it all together.
When writing a plan, I found the information Man Financial Site (someone offered the link earlier on this thread) useful along with some useful information from Investopedia:
http://www.investopedia.com/articles/trading/04/042104.asp
What have I got on my plan?
- What I trade
- Why I choose this market
- What trading vehicle do I use and why
- What are my money management rules
- What are my profit objectives, and when will I change them
- What set ups do I look for
- What are my entry rules
- How do I manage and exit my trade
- What do i do before trading (ie before market opens or before you trade when you come home from work)
- What do I do after the market has closed.
http://www.investopedia.com/articles/trading/04/042104.asp
What have I got on my plan?
- What I trade
- Why I choose this market
- What trading vehicle do I use and why
- What are my money management rules
- What are my profit objectives, and when will I change them
- What set ups do I look for
- What are my entry rules
- How do I manage and exit my trade
- What do i do before trading (ie before market opens or before you trade when you come home from work)
- What do I do after the market has closed.
dbphoenix' post on the original thread read. . ."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."
My views on trading plans are......
- A plan is a very good and essential but it doesn't have to be written down and shouldn't constrain.
- Having a plan doesn't turn an unprofitable trader into a profitable one (but it may help some).
- Every trader is different so what suits one ( a written plan & whats in it) may not suit another.
- A beginner cannot have a trading plan as described above. This is because if the plan they write contains 'tested and profitable' trading plans I wouldn't describe them as a beginner. To have got that far they would have quite a lot of knowledge and experience.
A question.....
How much like a business plan should a trading plan be? e.g. Should it include a section on your 'niche' and area of expertise v. the competition or doesn't that matter if you've got a profitable method.
My views on trading plans are......
- A plan is a very good and essential but it doesn't have to be written down and shouldn't constrain.
- Having a plan doesn't turn an unprofitable trader into a profitable one (but it may help some).
- Every trader is different so what suits one ( a written plan & whats in it) may not suit another.
- A beginner cannot have a trading plan as described above. This is because if the plan they write contains 'tested and profitable' trading plans I wouldn't describe them as a beginner. To have got that far they would have quite a lot of knowledge and experience.
A question.....
How much like a business plan should a trading plan be? e.g. Should it include a section on your 'niche' and area of expertise v. the competition or doesn't that matter if you've got a profitable method.
roguetrader
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As with anything in life everyone will have different views as to what a trading plan should consist of, my view in light of phrases like "plan the trade, and trade the plan" etc, is that a trading plan should at its heart contain a framework to enable the individual to enter, manage and exit a trade, profitable or not. Nothing more.
Consequently when I look at a particular stock that has come up on my screen I often have planned the trade before I even decided if the trade is viable or not. Such is its simplicity.
But ultimately whatever you decide to adopt as a trading plan you must be comfortable with it, after that the market will tell you if it is a good plan or not.
As for dbphoenix's post, I suspect he was referring to paper trading a plan befor you commit cash and there by it will have been to a degree tried and tested, as long as you are honest with your paper trades.
Appologies dbp if I have mis-interpreted
Consequently when I look at a particular stock that has come up on my screen I often have planned the trade before I even decided if the trade is viable or not. Such is its simplicity.
But ultimately whatever you decide to adopt as a trading plan you must be comfortable with it, after that the market will tell you if it is a good plan or not.
As for dbphoenix's post, I suspect he was referring to paper trading a plan befor you commit cash and there by it will have been to a degree tried and tested, as long as you are honest with your paper trades.
Appologies dbp if I have mis-interpreted
sulong, I guess it depends on your motivation for defining a trading plan. It should be OK to change it for the right reasons (i.e. new information changing the parameters of a trade) but wrong if you want to change the plan based on hope, greed or dispair.
Very useful thread for us beginners out here.
I was going to ask about system testing - how should this be handled in a trading plan, if at all - but then I realise that is all depends on one basic question: Should one person have one overall trading plan, or can/should there be one for each type of trading?
From reading all the above, it seems to suggest that one plan per person.
If this is true - and Tuffty hit the nail on the head - where does a beginner begin?
Jyde
I was going to ask about system testing - how should this be handled in a trading plan, if at all - but then I realise that is all depends on one basic question: Should one person have one overall trading plan, or can/should there be one for each type of trading?
From reading all the above, it seems to suggest that one plan per person.
If this is true - and Tuffty hit the nail on the head - where does a beginner begin?
Jyde
roguetrader
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Jyde,
Again there are likely many different ideas as to what constitutes a biginner and there fore a difficult question to answer, but to take itright from the beginning..........
In my humble opinion you start with yourself. Ask yourself the following questions.
Why do I want to trade?
What would be my goals from trading?
What aspects of trading interest me?
How much time do I want to devote to trading?
How much money do I have to devote to trading?
Having answered those questions, then you have a direction,be it stocks futures, currency.
From there you want to read as much as you can surrounding the area you want to concentrate on. Observe the movements of the chosen vehivle you wish to trade,by watching you will naturally begin to develop theories as to what you expect to happen based on what you have learned. By paper trsading these theories you will get an idea if you are on the right track.
Again there are likely many different ideas as to what constitutes a biginner and there fore a difficult question to answer, but to take itright from the beginning..........
In my humble opinion you start with yourself. Ask yourself the following questions.
Why do I want to trade?
What would be my goals from trading?
What aspects of trading interest me?
How much time do I want to devote to trading?
How much money do I have to devote to trading?
Having answered those questions, then you have a direction,be it stocks futures, currency.
From there you want to read as much as you can surrounding the area you want to concentrate on. Observe the movements of the chosen vehivle you wish to trade,by watching you will naturally begin to develop theories as to what you expect to happen based on what you have learned. By paper trsading these theories you will get an idea if you are on the right track.
Jyde, I think you have to go ahead with what suits you. Good advice from rougue trader. I have a difference of opinion on paper trading. I'd argue it doesn't get you very far up the learning curve. Much better to use real money then you can feel real emotions when trading. One can read all the theory about how to ski and pretend to do it in your lounge but it doesn't get you very far when you do it for real. Obviously one would choose a gentle slope first (i.e. very small fraction of your trading money) so when you fall over (loose the lot) it doen't hurt too much but the lesson is learnt (i.e. use and apply a stop loss).
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