Trading Plan

[Prime]

Hi All,

I'm a relative newbie ...

I've read in many places that there is a huge percentage of traders who lose money and that difference between winners and losers is that the winners have and follow a written trading plan.

I accept that having and using a trading plan is of no use unless you have sound strategies for entry/duration/exit from a position.

I've been writing my plan ... I'd like to know what others are putting in their plan.

I'd also like to read about what others are successfully doing in terms of strategy / risk management / money management etc ...

Cheers

 

[constable]

See tech/a's advice in the short term trading thread

 

[stevo]

Gee - you could write a book on this topic alone! And many already have Have you read Van Tharp's book?

www.iitm.com/products/books/trade_your_way_to_financial_free.htm

Stevo

 

[Sean K]

Plan?

Buy low, sell high!

I am hopeless, my plan changes every day, depending on the market.

One policy I have is to spread the risk. No more than 2% on any 'trading' stock, no more than 5% in 'investment' stocks, and no more than 10% in a managed fund.

Also, avoid Moses's stock picks.

 

[ice]

If you can't write it on the back of an envelope it's too complicated (unless you're using crayon of course in which case 2 envelopes).

My plan is:
1. Leave your ego at the door
2. Trade the market you see, not the market you'd like to see.
3. Wait for the right trade
4. Wait for the right trade
5. Wait for the right trade
6. Cut losses immediately, but let winners run as long as possible.


ice

 

[CanOz]

Heres a simple plan:

1.) pick a stock to trade, determine an entry point, think about an exit point
2.) buy the stock (as cheap as possible)
3.) PUT THE STOP ORDER IN
4.) CHECK the stop order
5.) Watch the trade, and the price action very closely
6.) Stick with your plan

Now all of this is fine to just write down in bullet points...but to pick a stock is a chore itself, do i pick breakouts or wait until they consolidate into a pennant, trade sideways, exhaust the sellers? This to me, is where the skill is.

Discipline will make you put the stops and ride the wave until you reach your goal.

You have a 50/50 chance of a winner. Exit the losers and keep the winners running.

Something to start with anyway.

Good luck,

 

[TraderPro]

There are so many ways to skin a chicken...

So many ways...

My suggestion is that you read up on a lot of books at a large bookstore - and read all the different theories that authors have on setting up a good trading plan.

If you find one that speaks to you - listen to them.

The common message is:
Have an entry plan
Have an exit plan
Have a money management plan
Have a Risk management plan

 

[Magdoran]

Hi All,

I'm a relative newbie ...

I've read in many places that there is a huge percentage of traders who lose money and that difference between winners and losers is that the winners have and follow a written trading plan.

I accept that having and using a trading plan is of no use unless you have sound strategies for entry/duration/exit from a position.

I've been writing my plan ... I'd like to know what others are putting in their plan.

I'd also like to read about what others are successfully doing in terms of strategy / risk management / money management etc ...

Cheers

Hello Prime,


Welcome to ASF, I hope you find some worthwhile information in your travels here.

If you can't write it on the back of an envelope it's too complicated (unless you're using crayon of course in which case 2 envelopes).

My plan is:
1. Leave your ego at the door
2. Trade the market you see, not the market you'd like to see.
3. Wait for the right trade
4. Wait for the right trade
5. Wait for the right trade
6. Cut losses immediately, but let winners run as long as possible.


ice

I kind of disagree with this approach, in that it’s excluding a range of approaches, and I’d suggest that all of us must develop an approach which suits our trading style, which in itself begs many questions. Of course ice’s approach may suit you, but it may not.

A lot will depend on the type of analysis you are using, what your risk profile is like (where in the spectrum you are from aggressive to conservative), the type of instrument (shares trade very differently to options, warrants, futures, CFDs, bonds, indexes, Forex and a whole plethora of structured financial instruments), the type of market you want to trade (small caps, blue chips, indexes etc).

Then you’ve got to think about issues such as position size, entry criteria, exit criteria (on profit, stop loss, partial exits, partial entries, pyramiding/adding to positions, hedging, etc).

As you can imagine, if you use a range of instruments like I do, hedge, use options etc, the trading plan can become quite complex compared to the simple “back of the envelope” style like ice. Ice I suspect was referring to their trading approach possibly using straight shares with an entry and exit criteria probably without partial entry or exit criteria, or any kind of adding to positions, and possibly without any time based refinements.

My view is it’s horses for courses. Trade what you understand, and develop what you feel comfortable with, but also consider that whatever you develop delivers realistic results based on your ability. If you develop plans that either don’t’ work, or could be improved as you learn, don’t feel like they are set in concrete.

There are many different approaches that can be effective, why not look at the various traders on this site, and compare and contrast their approaches. It may be worthwhile every so often to pioneer different approaches, either on paper or in reality to find which is more effective as you develop.

Me, I develop fairly involved “battle plans” like a campaign, which can actually be a couple of pages long combined with graphical points on charts. But I use a range of approaches and instruments, hence I need to do this. You may not if you’re just trading straight shares with an entry and exit criteria.

constable’s suggestion about tech/a’s advice is worthwhile if you’re using a moving average based technical analysis (I don’t), it would be worthwhile examining how he sets up his approach.

stevo’s advice is also worthwhile in that Van Tharp “Trade your way to financial freedom” is not a bad place to start when it comes to concepts such as positive expectancy, but you may find in time you out grow the conceptual rigidity and narrowness of this work, but it is an excellent starter.

Regards


Magdoran

 

[Prime]

Wow ... I'm not used to so many descent replys to a newbie question.

Thank you all for your input.

Magdoran, Your summary was well written and will be well considered.

Many of the things that you mentioned I have already included and described in my trading plan, and the others I will include and describe later.

My basic philosophy at this point is to trade what I know and in a fashion that I am comfortable with and with due regard to my risk profile. I am adopting fairly basic entry, duration, and exit criteria and will refine these as time goes on.

I am treating my trading as a business and hence feel the need to write a business/trading plan to suite my level of expertise ... not withstanding, the plan will evolve as my systems are honed and my understanding of other financial instruments improves.

I will research the links and books suggested by those that forwarded them.

Many thanks

 

[stink]

Hi Mate,

I honestly think its irrelevant to a certain extent. Let me explain.

Your trading plan is a living dynamic strategy but is only relevant to your education level and knowledge at the time of writing it.

Mine has gone from having entry exit blah blah, what does it matter. like some have said, play the market at the time. Money management is the plan for me, if i know i have that sorted then i am ok.

The rest is purely a discretionary decision based on god knows how many combinations of indicators etc. My is not advice, but purely my opinion on the way i look at things now because:

1. I have never had a problem finding entry signals etc etc
2. I will exit differently each time, it just depends.

I think a few guys on here have given me the advice in the past that, if your always looking for the perfect entry and setup you will never actually play the game.

Cheers Stink

 

[tech/a]

Let me just drop in here and make a very important point which has been missed here and missed by pretty well ALL newbie traders and some who trade(albeit with average returns).

No trading plan is worth the paper its written on if it is unknown that upon trading it for x period of time that it WILL make a profit.

Every plan I have seen here (not this thread but on this site) is full of wonderful theory (often regurgitated---eg Money Management--- and the often quoted 2% rule---risk and the often mentioned 2% rule---if people honestly think thats all there is to M/M---god help them---its a beginning and may not be suited to a trading methodology---understand this!) but NO factual basis that a profit CAN be made---let alone WILL be made.

If you have a plan with no factual basis of expectancy then just write me your cheque for the trades you take---Ill make better use of it!

 

[moses]

Plan?

Also, avoid Moses's stock picks.

thats probably the most sensible advice of all.

I should start selling books...

 

[moses]

Plan?

Also, avoid Moses's stock picks.

Mind you, I am at no.16 on 20% atm, unlike Kennas who is at no.48 and 0%, but there's plenty of time yet left in the month for the Moses effect to do its thing.

 

[stink]

Let me just drop in here and make a very important point which has been missed here and missed by pretty well ALL newbie traders and some who trade(albeit with average returns).

No trading plan is worth the paper its written on if it is unknown that upon trading it for x period of time that it WILL make a profit.

!

This is my point exactly, it doesnt really matter because you cant prove what you have planned will work. ( You and Nick's book have probably cemented this way of thinking for me )

You can however manage your money as best as you know how. I am learning slowly but i am not putting myself at great risk.

Cheers Stink

 

[Prime]

No trading plan is worth the paper its written on if it is unknown that upon trading it for x period of time that it WILL make a profit.

...

If you have a plan with no factual basis of expectancy then just write me your cheque for the trades you take---Ill make better use of it!

You are absolutely correct. A plan that produces consistent losses is worth nothing!

Having said that, isn't the whole idea of writing a plan designed to crystalise in your mind the researched methodology and system that will produce a profit ... and furthermore includes a system to adjust the plan if the desired outcome is not being achieved?

Construction of a business plan that that does not address preformance review and subsequent adjustment issues is a waste of time, and the plan is doomed to fail.

Also, could you elaborate on what you mean by "factual basis of expectancy" please.

many thanks ...

 

[tech/a]

Stink we crossed I was writting while you were posting.

You are absolutely correct. A plan that produces consistent losses is worth nothing!

Having said that, isn't the whole idea of writing a plan designed to crystalise in your mind the researched methodology and system that will produce a profit ... and furthermore includes a system to adjust the plan if the desired outcome is not being achieved?

So how will you go about doing that and knowing BEFORE you invest in a single share what the long term outcome will be???

Construction of a business plan that that does not address preformance review and subsequent adjustment issues is a waste of time, and the plan is doomed to fail.

True so where are you going to get the original figures to compare to?
Or are you considering trading accumulating the resultant numbers and fiddling as you go?

Also, could you elaborate on what you mean by "factual basis of expectancy" please.

many thanks ...

Yes after you have answered the above.

 

[Prime]

Ummm ... why do I get the feeling that you're setting me up for a fall?

Part 1.
As you well know past performance is no guarantee of future performance. You cannot know before you invest that any stock will perform. It is only the weight of evidence that you glean from your research that will guide you with some probability of a positive outcome. (or keep you from away from a negative outcome).

All I'm saying is that a disciplined considered approach to investment decisions should produce better results than a dartboard "lets see what happens" approach ... and crystalising the decision making approach in writing is surely better than relying on gut feeling and memory?

Part 2.
Firstly I am still in the process of identifying entry & exit strategies. i have already defined money management, risk management strategies.

Once all the strategies are in place, I expect to spend some time back testing and then forward testing those strategies using historical data. If these strategies in their entirety work then live trading will commence.

After each trade is finalised I will be reviewing the results. If the results are negative or significantly underperforming market averages then strategy adjustments are called for. (BTW, all of this is detailed in my trading plan)

I get the feeling that you believe that a written trading plan is a waste of time or is it that you haven't come across many plans that are well considered and thought out?

 

[It's Snake Pliskin]

Hi All,

I'm a relative newbie ...

I've read in many places that there is a huge percentage of traders who lose money and that difference between winners and losers is that the winners have and follow a written trading plan.

I accept that having and using a trading plan is of no use unless you have sound strategies for entry/duration/exit from a position.

I've been writing my plan ... I'd like to know what others are putting in their plan.

I'd also like to read about what others are successfully doing in terms of strategy / risk management / money management etc ...

Cheers

Prime,

Dedicate your spare time to understanding and reflection. If that means reading a whole lybrary then so be it.

Determine what can make you profitable. It is that simple. How is it profitable? What validates the profitability?

You need goals and beliefs. Without a belief what are you trading? Without a goal where are you going?

Just remember nothing is guaranteed, even blueprints or plans.

Once all the strategies are in place, I expect to spend some time back testing and then forward testing those strategies using historical data. If these strategies in their entirety work then live trading will commence.

Try using a small amount of capital and test in real terms, with emotions, real execution etc. I repeat SMALL.

 

[stink]

Hi Again,

I dont think anyone here will try and say what you are doing is wrong, as snake alluded to, its what works for you.

They will however question your reasoning and logic, which IMO is great. I think the way i do on the subject because i have asked the same questions already. I agree in principle but for me i just havent been able to cement it practically.

The more i read and learn, the more i question the need for a so called "take action plan". I mean entry's for example, whats good for you is rubbish to me. That doesnt mean we both dont make a profit of a trade. You might want to "pick the bottom" i dont give a rats about that, i simply look for opportunity based on price action history over the long and short term.

Again i ask why does it matter? why have an exit criteria? why not manage the trade as it unfolds and when it goes against your out?

Ever since i have cleared my head of the need to technically validate everything i do, i am alot more comfortable. Look after your money first, the trades will always be there.

Anyway Cheers

I wonder if i can predict Tech's answer

 

[It's Snake Pliskin]

The more i read and learn, the more i question the need for a so called "take action plan". I mean entry's for example, whats good for you is rubbish to me. That doesnt mean we both dont make a profit of a trade. You might want to "pick the bottom" i dont give a rats about that, i simply look for opportunity based on price action history over the long and short term.

Yes, consider your element or CONTEXT and build it around that.

Ever since i have cleared my head of the need to technically validate everything i do, i am alot more comfortable. Look after your money first, the trades will always be there.

Determine what will make you profitable. There is so much in Stinks writing here.