“If you fail to plan then you plan to fail”
What’s in your trading plan?
In his song “The Gambler”, Kenny Rogers sang; “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run. You never count your money, while you’re sitting at the table, there’ll be time enough for counting when the dealings done“.
He could have been singing about trading, because I think those lyrics cover two of the main issues affecting trader’s success. They are…
1. trading to a plan, and
2. fear and greed.
We’ll save fear and greed for another post, but let’s look at the trading plan now.
If I were to ask people what they thought a trading plan was, they might talk about the type of markets they are trading and the outcome they are hoping for, for example; “I’m writing put credit spreads on the ASX around 4-6 weeks out and hoping they expire safe” or perhaps “I aim to make 10 points trading the SPI futures each morning“, or even “I just buy options on the stock market - calls when it’s going up and puts when it’s going down“.
They might also talk about how they are trading, for example; “I’m using technical analysis and if the stock is trading above this EMA and the MACD is pointing up then I go long and put a stop just under this low, and…” Or perhaps they prefer a combination of technical and fundamental analysis… “Well I wait for the stock to become good value, and then check to see if the RSI is oversold, then…” …and so on.
A trading plan is your business plan, so it needs to be more than just a trading system or a decision to trade a particular market if you want to trade profitably.
So, what are the elements of a good trading plan?
Well, how about you tell me what you think?
At the bottom of this post you’ll see some information about the categories this post has been filed under, and you’ll also see at the end of that list the number of comments that have been added to this post, or ‘no comments’ if none have been added yet.
Once you’ve registered for this blog and signed in (all of which is free) then you can click on the comments and add one of your own.
I’d like you to add a comment with just ONE element that you think should be included in a ‘perfect’ trading plan outline, and a brief description or reason why you think it belongs there. It might be something from your own trading plan, or something this post has prompted you to think about.
If you have more than one idea, please save it for a couple of days to give others a chance to come up with something. In a couple of days if you still can’t see your other ideas, then please do post another comment with them.
Hopefully we’ll get lots of comments from many different people and start to end up with the best outline for creating a trading plan.
In the meantime I’ll start the list off so that beginners have somewhere to start and don’t leave this page too frustrated at being asked to comment.
1. Entry signals: my trading plan’s trading system has entry signals that tell me under what conditions I will enter a trade.
2. Exit signals: my plan’s trading system also defines various exit signals that will let me exit a trade.
3. Money Management: my trading system is subject to an overall money management strategy and I can only trade x% of my trading bank in any particular trade, buy only if I don’t already have more than x% of my trading bank in current trades.
There are lots more that can be added - just read Dean’s last blog posts for some ideas if you get stuck.
Don’t forget to check back on this post regularly to see what comments have been added!
Happy Trading,
Brian Dibbins
Elite Insiders Group - Trading Systems
Trade Profitably © 2006 - 2007
