developing a trading plan plan 2012 07.pdf · trading plan = business plan a trading plan is very...

Developing a Trading Plan Investor’s Business Daily New York City MeetUp 7.25.12

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

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

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

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

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.

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

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

The Trading Plan

Outline

Trading Plan System(s) Traded Buying Selling Money Management Daily / Weekly Routine Performance and Evaluation

System(s) Traded

What kind of system(s) are you going to trade? CAN SLIM Options Shorting Bonds Forex Derivatives ???

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?

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

Selling - Defense

Use of Stops

Selling in a Correction

Selling at Earnings

Selling - Offense

20% Gains

Eight Week Rule

Monster Stocks

Re-Entering a Trade

Money Management

Number and Dollar Amount of Positions

Maximum Drawdown

Use of Margin

Daily / Weekly Routine

Morning Pre-Market

Mid Morning

After Noon (final hour of trading)

After Market’s Close

Weekend

Performance and Evaluation

Portfolio Tracking and Performance Review of Past Trades Strategy for Improvement Costs and Expenses Expected Performance Goals Long Range Planning

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