Plan: How you will trade: – “…tell you what, when, and how much to trade!”
Click on the Book to see what’s inside (285 pages).
What is the Traders Edge?
Wouldn’t we all love to have such a Plan? Yet that is what the web gurus scream can be ours for only a few hundred bucks (or thousands), and with volumes of satisfied users to back their claims. Who doesn’t want such a plan, or strategy? If you’ve spent any time trading in the market you understand how difficult it is to be a consistent winner. If you are a beginner, you have that experience ahead of you. In any case, regarding the pleasing claims tossed our way, we’re easily deceived when told exactly what we want to hear. Caveat emptor (let the buyer beware) is nowhere more real!
It is as if we decide to take up the game of golf and are told we need a particular golf club to begin. The leading cause of market error is the belief that you can rely on the experts to help you, or the recommendation of a particular trading system or method. Again, think of the golf analogy, Tiger Woods is a skilled golfer who could win with any set of clubs available. To say he must have a particular club to win is ludicrous. To say a beginning trader must have one particular system to make money, before developing personal trading skills, habits and understandings is just as wrong. A skilled trader can make money with any system (golf club). But the skill precedes the act. Here are some important steps to help on that road to skill, proficiency, understanding, insight, and the all-important “edge!“
1. Trading is not easy and one of the biggest challenges we face is following our plan or our signals. It is very easy to question a signal when the moment to act arrives, to hesitate and to then miss the opportunity.
2. Trading, like any other worthwhile endeavor, skill, or proficiency, is learned by doing. We’ve always learned by trial and error, taking the good, the successes, the wins right along with the hiccups, the false starts, the painful errors and mistakes. Real winners get there by learning from each mis-cue, adding line upon line, NOT by exercising mistake-free actions and superior performance. It’s been said, he who makes the most errors wins! But only if each error is accompanied by a lesson learned.
3. The Lessons-learned go into the body of knowledge and experience that make us each professionals in our own right. The execution skills we acquire are the basic shots and strokes that make up the games of golf or tennis. There is no reason to have a tennis strategy if we can’t make the array of strokes needed to play the game. The best tennis strategy in the game is worthless if we can’t return a serve. There is no value having a trading strategy if we can’t trade and a novice trader has not yet learned how to trade. The problems we all face trying to make money trading is simply the fact that we do not yet have the skills of a trader. We need to become traders, not find a one-size-fits-all packaged system.
4. We can accelerate our learning with the support and advice of those further up the curve. Trading skills are the implementation and execution of the acts of trading. If it were simply the execution of a set of steps and rules, how could we not make it work? The problems we encounter along this learning curve deal with the psychology of what and why we react in certain ways. That simply suggests that the learning curve will not be the same for us all. We are very different personalities and must understand and control how we react to different situations. It is for that important reason we MUST have a plan, our own plan, our own strategy we must follow to keep emotion out of the picture. Now that’s a big order! We are all emotional beings and will react in our own way and in our own manner to the varied curves thrown at us as we trade. AND THAT IS WHY WE MUST HAVE A WRITTEN PLAN (STRATEGY) FOR HOW TO REACT TO MARKET SIGNALS!
5. Jack Schwager has written two classics called “Market Wizards,” where he did in-depth interviews with those who were considered the most successful traders in the business. What stood out from these very insightful interviews was the fact that each of these traders had a different approach or system, yet they are all successful. Their approach was not the common factor that determined their success (…they all had different golf clubs). The common factor amongst them was their trading skills. The million dollar question is how can we develop such trading skills in ourselves.
6. We need to look within ourselves for the answers, what problems do we experience, and what behaviors result in our lack of success and our failures? It is overcoming these behaviors that move us along the path of the trader. The basic rules of trading are cut your losses short and let your profits run, a losing trader is not doing one or both of these. When we have learnt to ruthlessly cut our losses and have the restraint to run our profits, only then are we traders.
7. The system vendor would suggest that all our previous trading problems result from not having a good enough strategy, which of course he can easily solve for us. His basic premise is that all the psychological issues in trading, in fact all the problems we have in trading, are the result of not having a really good system or strategy. That is like claiming that we could all play golf like Tiger Woods if we had a certain set of golf clubs, or that we could achieve the same level of success playing tennis as Pete Sampras if we used the latest racket.
8. We all need golf clubs to play golf or a tennis racket to play tennis, no question; but they do not determine our success. What will determine our success is a sound trading plan, in writing, written out of the heat of the battle, without the emotion of market direction and extent in your face. The trading plan is the key tool for our ongoing trading success, which can be reviewed after a trading day looking for confirmations or rejections of key principles. Novice traders will often abandon their plan in the heat of the battle, second-guessing the plan and its intent. What must take place during the trading session is total focus on the plan. You have factored in the risks up front when you outlined the plan and understand deeply that you can’t experience real harm should the plan fail.
9. A trading plan could be as simple as the following:
“Buy one contract whenever the market gaps lower at the open
and is in the top half of its range after 3o minutes;
Exit if the market breaks the low of the day, or at the close.”
This has a trading strategy, a money management parameter, and position size. The thought or plan here is determined before the market opens. The trader can follow this each day and not have to think hard about what he is doing. The thought preceded the days action.
10. A more elaborate trading plan might look like the following:
1. Trade price range: $7 < X < $35
2. Holding period; 3 to 10 days
3. Enter: break of 2-day high
4. Enter; S/R break
5. Enter; 62% retracement
6. Exit; touch of the top Bollinger Band
7. Exit; Return into first hour range
8. Filter; No entry on negative TICK
9. Filter; No entry from 11:45am EST to 12:45pm EST
From old Worden note: “Being right and wrong in the market is like inhaling and exhaling. Both should be accepted as natural companions. You make profits by exploiting the times you are right and minimizing the times you are wrong. The only calamity is to stop breathing altogether.”
“Waiting to be right is the best way to be wrong.”
Learn how Options traders magnify their leverage in our book “Provident Investing.” Get the Traders Edge!
Additionally, take advantage of the 24-hour trading clock offered by Forex, a remarkable feature covered in Chapter 8.
Plus, the most important message in the book, Money Management, Chapter 6! “What’s this about Position Size?”