BUILDING A TRADING PLAN!

Trading is a very unique occupation! For some, it is something they have been, or are currently dabbling in. If you have ever been in the stock market, then you know the ups and downs as well as any trader out there. Most do not take the time to focus on how THEY trade in the first place. Some of us just shoot from the hip or have a feeling. If you are making good money trading, then you can skip to other articles in this blog, but if you are not, or you are up and down as much as the market then you should definitely keep reading!

When I started trading I hadn’t the slightest idea what I was getting into. It looked so easy, not to mention I could make serious bank in my paper trading account!

After a couple of years of “Trading” off and on, I realized that it was certainly possible to make money trading, but it was far from easy! The problems I had personally was that I hadn’t understood what trades I was actually successful at! What was the fix?

THE JOURNALING PROCESS

I began to journal my trading. I really made some very descriptive notes. I took pictures of my charts with screen capturing tools with my trade entries and exits. I then used this information to reflect on how to do it better or avoid something that was harmful to my success. I logged every single one, I also ran through charts to see if I could notice anything that seemed to repeat itself and formulated a plan to try and trade those set ups. Overall my journaling process gave me some interesting data about my winning trades! For one, my winning trades were in fact much larger than my loosing trades. There was also a pattern with my winning trades that I hadn’t noticed before. I was making big wins on a particular short side set up! This was my EDGE. Once you find your EDGE, its time to really formulate a plan around that Edge.

AN EDGE

How much trade experience do you have? Have you made enough trades to have some idea about what you trade best. This is crazy important! Some of you may have had that AHA moment like I, and many other traders had when they realized they were onto something. If you have had this trade than you know exactly what I am talking about. That “one” is your edge.

Now lets look at other characteristics that can really hinder our ability to become successful traders. The phycological pressures that we feel are what I believe actually makes it the most difficult to become efficient traders.

TRADING PROBLEMS

Most traders know what they are doing wrong when it comes to problems with ones self discipline. In order to isolate and correct these issues we have to first confront them. In the early stages of my journaling process, I categorized my trading problems like, overtrading, taking trades shooting from the hip, and jumping out of trades in fear after the market pullback. Those types of issues can be resolved if you structure your plan to do so!

HOW DO YOU FIX THEM

The first resolve would be to figure out why you are making these mistakes in the first place. These reactions to the market could be something deeply rooted in our psyche. Most of our emotional reactions are natural responses, like fear, or fight or flight responses. The one thing we have to remember is that the market is an inanimate object, and that we can only subject ourselves to the pains/joys of the market willingly. Lose the “Make Tons of Money Dream” it is actually clouding your judgment. Money made from the market is the by product of following sound rules. I feel the need to repeat that…….MONEY MADE FROM THE MARKET IS THE BY PRODUCT OF FOLLOWING SOUND RULES!!!

One of the main things we have to understand as quickly as possible is that we are not in control of the markets, nor can we make things happen the way we want them to. This means when we accept the risk, we have to really accept it. One way to counter ourselves in the markets is to make strict rules for ourselves based on our psychological responses to the markets.

VERY COMMON TRADING ISSUES

OVERTRADING – Set limits for yourself, some brokers may even set a limit for you like only allowing (x number of trades) per day/week If you talk to them. They can also set up a max daily loss limit!

HAVENT FOUND YOUR EDGE – This is a tough one to explain because everyone is so different, Journal your trades and try to best understand your good trades and try to replicate the results through a back-testing software. I use ThinkOrSwim OnDemand tool! Don’t forget to stay away from trades that haven’t aided in your success.

There are many more than these two, but I typically see these two being a consistent issue among novice traders. Once you isolate the things that you personally need to fix create a FIX for those issues as quickly as you can.

THOUGHT EXERCISE

Write down and list the pros and cons of trading. Then write down things that you are good at, and things you really need to work on within your discipline problems or trading. Reflect on those items because making an effort to correct these problems daily will be what begins the process of becoming a more efficient and effective trader.

Your answers need to be as honest as possible so set the Ego aside. These answers and reflections will be the very foundation from which your trading plan will be built from.

BUILDING THE PLAN

After all of the previous ideas have been collected and reflected upon, and you have put serious thought into how you will remedy the problems and focus only on what has had higher probability for you, then you can begin Building a Trading Plan.

A Trading Plan is an overall structure of your ideas about the market. What instrument(s) you will be trading. Your initial sizing. Your daily max loss. How you will manage your Risk, Your daily goal (this is NOT a dollar figure) it is a promise to yourself that you will abide by all the rules that you have set for yourself………..remember MONEY MADE IN THE MARKET IS A BY PRODUCT OF FOLLOWING SOUND RULES…….there I said it again. You should place in this document everything and anything that will keep you within boundaries to implement and execute your ideas.

Once you have gotten to this point you will repeat the processes written in this article until you feel that you no longer have too, which will be either when you no longer trade, have made enough to retire, lost everything (lol …just kidding, but I hope no one sees this as an option going into trading because some have done just that)……

I really hope you all learned something from this article, and really do hope that many successful traders come through here. Keep pushing, as I know this is the toughest game some of you will ever play, I know it first hand as I have given my fair share of capital to both my broker and the other market participants.

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