Trading Plan : We do need one

What Is a Trading Plan?

A trading plan is a complete set of rules that covers every aspect of your trading life. Many experts refer to the need to have an ‘edge’ which will tip the balance of probabilities of success in your favour. In itself, a plan is not an edge but, over time, the trader with a plan will fair a lot better than the trader without one. Many amateur traders do not have any sort of plan to trade by, and enter the markets with scant regard to their risk and profit objectives. Suffice to say, comprehensive risk and money management strategies lie at the heart of all good trading plans.

Traders with a plan have the ability to monitor their performance. They can evaluate their progress continually, day-by-day, in a way that is objective and comprehensive. This enables them to trade without emotion and with minimal stress. The trader without a plan is not able to do this and their trading tends to rely upon gut feeling, hunches and tips etc. Trading for them is a nail biting, emotional roller coaster ride of stress that, inevitably, results in financial loss.

Obviously, a plan does not guarantee success; that would be too simple. However, a good plan that is adhered to strictly will help to minimise losses and enable you to stay in the game a lot longer than traders who do not have a plan. In his book ‘trading online’, Alpesh B. Patel writes, “While a plan cannot predict the future, it can lay down how you react to the possible outcomes. This is why a plan is essential. It is a list of strategic responses to events beyond your control. You control the only thing you can control – yourself”.

Some confusion exists over the difference between a trading plan (or system) and a trading strategy. As stated above, the former is a complete set of rules that governs every aspect of your trading life. It goes into great detail and may, for example, stipulate the amount of time devoted to reading threads on T2W! The term ‘trading strategy’ tends to be used to describe trade entry and exit criteria. However, these are merely elements of an overall trading plan and possibly not even the most important ones. It is perfectly feasible, desirable even, to include two or more trading strategies (i.e. entry and exit criteria) within
an overall trading plan.

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TRADING PLAN CONSIDERATIONS

1. Define objective.

a. Plan to trade for a living or just augment income?
b. Which instruments to focus.
c. Time frame; Scalp, Swing, Position, Manage Portfolio, Combination?
d. Initial investment.

2. Education & Training. You should plan the amount of time you plan to spend on continuing and ongoing education. Plan the amount of time you will spend doing your homework and research. This business requires continual education and adaptation.

The trading plan is perhaps the most overlooked tool in a trader’s arsenal. In fact, most traders
don’t even write their first plan. Then most traders also go broke in their first six months. In our opinion, this is no coincidence. A pilot doesn’t leave the ground without a checklist; a builder doesn't begin construction without a blueprint; therefore, a successful trader shouldn’t take a trade until they have a carefully crafted, reviewed, re-written, re-considered, trading plan.

Much like a business plan, a trading plan is used to define one’s goals, identify one’s costs, and
lay out the strategies one needs to reach those goals. Unlike a business plan, it must be adhered to with
absolute discipline in order to be of continuing use. It is this intractability that gives the savvy trader an
edge. The plan provides a measure of consistency in the way traders approach an ever-uncertain market.
Why is consistency important? Think about how difficult it is for a stationary marksman to hit a
moving target (much harder than it looks in the movies). Now, imagine that the marksman is also moving at the same time. This dramatically reduces the chance of hitting the target with any degree of regularity.

On a high level, this analogy illustrates the relationship between a trader and the market being traded. The entity is always in a state of flux (moving either up, down, or sideways), and the trader is continually trying to gauge that movement to ascertain exactly when to pull the trigger. When done from a stationary perspective, one will enjoy greater success than if constantly shifting position.

1. The first step in writing a trading plan lies in understanding exactly what is being written about:
trading. And make no mistake; it is a business – a big business - with some of the shrewdest and
most experienced players on Wall Street competing for the best trade.

2. Learn what others know and learn to trade as well as others. Often, success boils down to the
“trading plan,” not the “player.” Decisions to buy or sell a stock often come down to the last second.
Without a plan, there will be hesitancy when the window of opportunity is rapidly vanishing. On the
other hand, the prepared trader – the one with a trading plan - can react without hesitation in a
consistent fashion because they’ve already written down the various trading strategies they intend
to invoke and have a clearly defined set of rules on how to play the tactics. A polished plan
removes the emotion from the equation engendering more mechanically {automated thinking}
executed actions.

3. Agreeing with the philosophy that trading is a business, the language and the format of the plan
should deliver a business like tone. Furthermore, it must be written well enough to convince a
hypothetical banker that trading is a worthwhile enterprise and that the trader is up to the task of
running it as CEO. So, forget dashing off a few quick paragraphs! Think forward: Write a good
trading plan. Take the necessary time, careful thought, and commitment toward the idea that the
plan will work. Otherwise, the plan will just go through the motions of what in the end will amount to
futile exercise.

4. BE REALISTIC! Don’t set goals based on wild dreams of winning the lottery. Making money
doesn’t occur real fast trading. Do not set yourself up for failure.

5. DETAILS. Cover as many facets of your trading plan as possible. Strategies, indicators, money
management, entries and exits, time of day, and finally, when to simply observe. The more detailed
the plan, the better..

6. INDICATORS: Define and limit the use of indicators. Too many is worse than none.

7. MONEY MANAGEMENT: Be sure to keep the proper perspective about money. This works both
ways, when having a great day, or a losing day. Just be sure to have enough to play the next day.
It’s easy to get “caught up in the money moment,” like getting punched in the face in a boxing
match. The boxer must learn to take punches. The trader must learn to step away from losers.

8. TRADE SIZE: This is the “valve” used to regulate money flow. Define the valve carefully. Do not
exceed predetermined limits without modifying the plan beforehand.

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The above are taken from some of the sites I have read. Reading and practising are two different stories. First of all, you need to BELIEVE that we need a trading plan BEFORE you could even trade.

Today, I will like to share the above post with my tratles in my trading class. There is no such thing as the 'best' trading plan or which one we should be following. We need to design our own and use others as guide-lines. Seriously, one of the MAIN weakness in most losers in KLSE(or any markets) is lack of plans ... or perhaps, DO NOT have a plan at all.

If you are a newbie ... GOOD. Start to read about these ... and start to design ONE plan. Do not think of trading yet .... dont worry, market is always there. Do yourself a favour ... DO NOT listen to others unless they are the minority people who consistently profitting from their trades. I believe they do have a good trading-plan before they trade. Discipline and hard-work ... now, do you know why trading is so difficult? Well, it is because MAJORITY prefer to cut-short many things(I do that too at times and was punished) ... and so many are pure ignorants!! They really thought market is a place for the to be rich or some sort of casino or just to feel their thrilling-needs?

Unless you want to improve yourself, you will be 'lost', searching in the noisy forums ... or worst still, only listen to some rumours. Take your trades in more serious manner, will you?

I still have a looong day today.

Have a nice day.

TEH