developing a trading plan plan 2012 07.pdf · trading plan = business plan a trading plan is very...
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Developing a Trading Plan Investor’s Business Daily New York City MeetUp 7.25.12
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Why Do Traders Fail?
1. Undercapitalized
2. Lack of discipline – no defined plan
3. No passion for the process
4. Poor money management
5. Failure to learn from mistakes
A good trading plan will help solve these
problems
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Do you really have a plan?
Traders who succeed have a written plan that defines the methodology and process for their trading activities.
Everybody has a plan until they get hit -Mike Tyson
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You need Passion to succeed
In case no one else told you, this is going to be hard. It’s going to take a long sustained effort. You need a passion for this.
10,000 hours is required for mastery. At 40 hours a week = 5 years At 4 hours a week = 50 years
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Remember…
In the beginning, the system is the most important factor
Once you become a good trader, the factors reverse and discipline becomes the most important thing
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Trading Plan = Business Plan
A trading plan is very similar to a business plan. You probably aren’t going use yours to raise money, but the rest of the elements are the same.
A business owner uses their plan to guide
their business decisions and grow their business. A trading plan does the same.
Without a trading business plan, you
probably don’t have a trading business that will survive.
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Ready, Fire, Aim
Once you’ve developed your trading plan, begin to test it through virtual and live trading.
Use this feedback to decide how often you need to update your plan. You may want to update once a month in the beginning and then twice a year or when you review your past trades
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Constant Improvement
Mistakes become learning tools Construct new rules based on experience
Trading stays focused “Maybe I should try Forex or Futures”
Losses are reduced or avoided What gets measured gets managed
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The Trading Plan
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Outline
Trading Plan System(s) Traded Buying Selling Money Management Daily / Weekly Routine Performance and Evaluation
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System(s) Traded
What kind of system(s) are you going to trade? CAN SLIM Options Shorting Bonds Forex Derivatives ???
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Market Conditions
What types of Markets will you trade?
Confirmed Uptrend
Timeframe
Will you trade in a downtrend?
How do you define it?
How will you trade in sideways or choppy markets?
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Buying
Position Sizing 50,30 20 Pyramid always or ? Early Entries Feeler Buys Add on Buys Late Entries Late Stage Bases Gaps Cost Basis Rules
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Selling - Defense
Use of Stops
Selling in a Correction
Selling at Earnings
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Selling - Offense
20% Gains
Eight Week Rule
Monster Stocks
Re-Entering a Trade
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Money Management
Number and Dollar Amount of Positions
Maximum Drawdown
Use of Margin
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Daily / Weekly Routine
Morning Pre-Market
Mid Morning
After Noon (final hour of trading)
After Market’s Close
Weekend
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Performance and Evaluation
Portfolio Tracking and Performance Review of Past Trades Strategy for Improvement Costs and Expenses Expected Performance Goals Long Range Planning
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Further Reading
Any plan is better than no plan
Keep it close at hand Don’t trade away from the
plan The next time you are
stressed or confused by market conditions, read and follow your plan