What Is A Trading Plan

What is a Trading Plan

You’ve probably heard the term.  I think it means different things to different people, though – it’s a not a term that every single trader uses the same way.

To me, it’s a set of rules, but it’s not the rules that tell me when to take a particular trade.  More, it’s the overall, overreaching set of rules I have, that define how I go about the activity of trading.

And the most important rules, the ones I’m so thankful I put thought into, are the rules that start with “what if ….”

So let’s talk about some rules.

First examples – when do you get up in the morning, before the trading day starts?  Do you always shower before sitting down at your trading desk?  Do you go out for a walk before-hand?  Do you watch the morning news?  Do you read the paper first?  Do you read any particular Morning Briefing type of report?

This set of rules, I think, is really, really important. Following a set of rules about these sorts of things you do, if you do them consistently every single trading day, will go a long way to assuring that you’re in the proper, positive, and happy mindset, and have some lucidity and clarity, before trading begins.   Imagine, flinging yourself out of bed and immediately plopping down blurry eyed in front of your trading PC, 5 minutes before trading begins.   If you do this, you’re going to make mistakes, and mistakes, generally, cost money.  And there will be a cumulative effect, as the trading day progresses, in that mistakes made earlier in the day will cloud your judgement later in the day.

I’ll wager that pretty much 100% of the folks who haven’t traded much, read that last paragraph and thought to themselves, “Yeah, sure I understand his point, but I’m a strong intelligent resourceful dynamic person, and I really don’t have the time to actually write down rules for those sorts of things.”

I’ll further wager that 95% of all folks who have been trading more than five years, will emphatically agree that it’s worth it.

So, we all have an idea of what a Trading Plan is.

Let’s get on, and list some things rules you should consider including in your trading plan:

* Every day, before trading, to get myself into the proper mindset, I will ……….

* If I’m in a trade, and my internet connection goes down, I will ………….

* If I am trying to enter a position with a limit order, and I don’t get a full fill within N minutes, I will ………..

* If I am in a trade, and power to my house goes out, I will ……….

* If I am in a trade, and my kid calls me & asks that I pick him up, I will ……….

* If I have a heated conversation with a friend or family member, and I’m obviously shaken, with the rest of the trading day, I will ……….

* If I’m in a trade, and my target is almost but not yet hit, and it’s 5 minutes before the end of regular trading hours, I will ……….

* If I’ve got a partial fill on my entry, and the price gets to either my target or stop (but the orders aren’t in place because my establishing order isn’t filled), I will ……….

* If I entered with a market order, but I got slippage of more than …… ticks, I will do ………. to my stops and targets, or I will do ……….. to the overall trade.

* If I’m in my trade, and price moved to my market order stop, or through my target, but my software shows that I’m still in the trade, I will ……….

* If my systems kick out more valid trade signals than I have capital to trade, I will ……….

* Once in a trade, I will only leave my trading PC under the following conditions, ……….

* If I’m in a trade, I think, but it’s not clear because my broker’s software is showing my position or stops or targets properly, I will ……….

* If I need to call my broker, I will do it this way, ……..  I have phone numbers written down here ……….  I have my account number written down here ……….    If the land line is down, I will ……….  If I’m not getting cell reception, I will ……….

* If I’m in a trade, and it’s going so amazingly well, so quickly, that I’m euphoric, I will ………

* If I’m in a trade, and it’s going amazingly horribly, so quickly, that I’m emotionally compromised, I will ………

* The only situations under which I will, on a discretionary basis, alter my stops are ……….  And my targets ……….

* The only situations in which I will withdraw money from my trading account are exactly these …….

* The only situations in which I will add money to my trading account are exactly these …….

* If I get into a draw-down of N %, on any trading system (or my overall aggregate trading), I will ……

* To reward myself, after I have a really good trading day ( or week or month), I will ……

* My position sizing system is EXACTLY this ……..

* After N losing trades in a row, I will ……..

* I will take the following holidays and vacation days away from trading ……….

* I will trade while on vacations, but only if the following conditions are met ……….

* If the market is in free-fall, I will (/won’t) continue following my trading signals, with these modifications ………

* If the market opens way up or way down, I will (/won’t) continue following my trading signals, with these modifications ………

* On the day after a massive range expansion, I will (/won’t) continue following my trading signals, with these modifications ………

* If war is declared somewhere on the planet, I will (/won’t) continue following my trading signals, with these modifications ………

* If there’s a terrorist attack, or something similar, on US soil, I will (/won’t) continue following my trading signals, with these modifications ………

* On Fed announcement days, I will (/won’t) continue following my trading signals, with these modifications ………

* If an economic report really jars the market, I will (/won’t) continue following my trading signals, with these modifications ………

* I will (/won’t) journal every trade every day; my discipline will be as such ……….

* After losing days of over N, I will ……….

* If I’m in a trade, and the data feed for the particular instrument I’m trading stops, I will ……….

* If I’m in a trade, and I realize I entered the wrong contract month, I will ……….

* If I realize my computer is virused up, I will ……..

* Besides my trading software, I will only ever use these applications on my trading PC, ……….

* I will change my passwords for my broker accounts every ……………

* I will change my IP every …………..

* I will share details of my profession only with these people ………….

* If I’m in a trade, and someone comes to the door, I will ……….

* I assure I have batteries handy for my wireless peripherals thusly ………

Please do consider writing down some of these rules, and others suited for you, into a valuable trading plan.

I hope this helps.

Happy Trading!

– Andy

 

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