An Example Of A Trading Plan

Having a detailed trading plan and the psychological ability to follow it strictly can be the difference between being a successful trader and a losing trader. Only a small number of traders ever succeed in the trading business and only a small number of traders have a detailed trading plan. The following is an example of a detailed trading plan you may ponder over:



1 Know Yourself, Know Your Purpose
1.1 Why Do You Want To Be A Trader?

There are number of reasons why I want to be a trader. To begin with, I want to be a trader because I want a second income so that I can pay off my mortgage early and not in 20 years time. Yes, I’m not ashamed to say that I’m motivated by money. When I succeed in trading, I can do all the things I always wanted to do without worrying about how I’ll pay my bills if I don’t work in an office job. It’s not to say that I don’t like my office job, because I do. I’m also very interested in trading, not a day goes by in which I don’t think about trading. I hope to become a large hedge fund manager some day, earn a lot of capital, so that I can help the poor all over the world.

Why the trading business? Because it fascinates me, I love the markets. Also I like the idea of liquidity that is present. One can trade millions or more without having to worry about all the headaches that accompany traditional business. I know it’s not going to be easy, I will be patient, persevere and give it a lot of time. In the end I’ll succeed. I know no one who became an expert in anything over-night. It will take years of hard work.


1.2 What Kind Of Trader Are You?


I am a discretionary trader and propose to trade medium (weekly) to short terms (daily). If I have a good position going in a trend, then I’ll hold it for as long as possible, else I’ll cut my loss very quickly. I’ll look at the weekly charts to determine the general long term trend, and use the daily charts to trade in the direction of the trend. Use hourly charts to execute my trades. I’ll develop discipline and follow my trading plan with absolute discipline like a robot. I’ll use every cell of my brain and intelligence to develop and refine my trading plan. Once developed, I’ll follow it like a robot without thinking about it at all.

1.3 What Are Your Strengths And Discipline?
Strengths:
1. Unquenchable interest, a lot of time invested so far.
2. Noticeable improvements in trading.
3. Able to accept losses relatively comfortably.
4. Understand trading is based on probability.
5. Accept it takes time and hard work.
6. Always use stop-loss, always cut my losses, accept losses.
7. Good risk and money management abilities.





Weakness:
1. Didn’t start of trading with a trading plan, didn’t have a written strategy.
2. Didn’t follow the strategy I had in my head.
3. Hesitate to execute a trade when a setup occurs.
4. Think too much before executing trades.
5. Greed and fear sets in.
6. Start thinking of potential gains rather than potential loss.
7. Hesitate to follow the rules I have in my head.
8. Not seeing trading as a business from the beginning.






Strengths Explained

1. My primary strength is that I have an unquenchable interest in trading. I have invested a lot of time, assets and effort in trading. I have not given up on trading even after a number of setbacks over many years on and off. I accept that it takes time, effort and hard work to succeed in this business. I believe I can succeed else I would have capitulated a long time ago.
2. My next strength is that I have seen a significant and noticeable improvement in my trading results even without a formal trading plan. The improvements are encouraging sign for me to continue in the path of being successful.
3. Third strength is that most of the time I define my risk, use stop-loss and accept my losses. I can improve so that I do the above all the time. This is one of the most important aspects of successful trading. This will ensure that I do not blow my account in the few unsuccessful trades. This will keep me in this business for a long time to enable me to learn from experience.
4. The fourth strength is my belief and understanding that trading is based on the probability to capitalise on the defined trading edge. When I take all the signals or setups, I know that will put the odds or the edge in my favour. Over the long run (large sample) I will come ahead. This also means I will not put all my eggs on one trade.
5. My fifth strength is that I have good money and risk management most of the time; this must improve to all the time. I never risk more than 5% on any one trade. I no longer take 2 positions on indices. Whereas before I had 5 or 6 position with less funds. I used to add positions to losers, I no longer do that. All points to significant improvements.



Weakness Explained
1. My primary weakness is that I did not have a trading plan and did not have a written trading strategy. As a result I did not have a solid foundation to follow. I hesitated to execute trade and my results have been erratic and inconsistent.
2. My second weakness is that I did not follow the trading strategy I had in my head. I know the trading strategy is profitable because when I did take the signals consistently for long enough it yielded good results. Every time I failed to execute the setup, the market went in the direction the setup indicated and would have been profitable. Every time I saw setup or the signal I hesitated and all kind of thoughts came into my head. There was a little voice in my head saying ‘ifs’ and ‘buts’. My mind and my intelligence talked me out of the setup and I failed to execute the trade. I could not pull the trigger on uncomfortable setups (which were the profitable one), but I took the comfortable path, the wrong path, the losing path, now I am creating this trading plan I will use all my intelligence, brain cells to produce it. This is to be my road map, and I will follow the signals without failure no matter how uncomfortable it looks or feels.



3. Greed and fear is my third weakness. The first thing that comes to my mind when trading is how much I could make, I start counting the potential gains, sometimes using calculators, this is pure greed at play. It should be the opposite of that, I should be thinking about the potential loss that I could incur, I should be thinking about preserving my capital, and trading well, that is to follow my strategy and not be counting the potential gains. Gains should be the by product of good trading.
4. My fourth weakness is that I fail to follow the trading rules in my head. This is not a surprise as trading rules should be clearly written down, only then it can become rules that can be followed. This written plan should eliminate this weakness as I will follow it by the letter.
5. My fifth weakness is that I did not see and fully accept trading as a business. Now I know all successful traders see it as a business. I know to be a successful trader I have to accept it as a business. I now full heartedly accept it as a business.



1.4 Are You In The Right Frame Of Mind To Trade?
I believe that my mindset is the key that lies between success and failure in the market.

I will only trade on days when I have a clear mind, free of any physical or mental distraction, worry or anxiety, not distracted by family issues or work.

I will only trade when I have done sufficient preliminary work and will not rush into any trade.

I will only trade when relaxed and comfortable free of any external distractions.

I will be guided by my trading plan and follow it rigidly. It will help to prevent me from making trades that are poorly conceived of and executed, i.e. trades that are based on gut feeling and motivated by greed.

I will not trade on day when I have not done sufficient research or did not have enough time to analyse my setup, or when I am on a hurry.

I will not trade when I am worried or have any family related issue, physical, mental or any other distractions.

1.5 What Are Your Income Targets?

My annual financial return targets are to get a return of 40% on my equity. This amounts to:
Yearly : 40% Initial capital of 6000.00, = 2400.00
Monthly: 3.33% = 200.00
Weekly : 0.77% = 50.00
Daily : 0.16% = 10.00

This is to be achieved without a drawdown to my equity of 20% annually. This equates to:
Yearly : 20% = 1200.00
Monthly: 1.67% = 100.00
Weekly : 0.38% = 25.00
Daily : 0.08% = 1.0


I know with such a small account size there will be a lot of volatility, which I hope will dissipate as the account size grows.

2 Trading Goals

2.1 What Are My Annual Trading Goals?

My annual trading goals is to complete this trading plan, incorporate one or two strategies in it, that will provide me a trading edge in order to tip the balance of probability in my favour. That can only be achieved if I follow it like a robot, rigidly. I will follow it without error or question the signals, without failure.

I will achieve this by:
Finishing this trading plan
With the believe that my strategy works
Following the plan rigidly.
Learn and modify the plan as necessary.

When I achieve that I will take myself my son, my family and friends for a meal in a good restaurant.

2.2 What Are My Monthly Trading Goals?

My monthly trading goal is to achieve consistent profitability every month, with a success ratio of 2:1 or more. I expect to achieve these goals because I will follow my trading plan with iron discipline, and only trade when I get a clear signal. I will follow a golden rule, “No signal, No trade”. I will avoid gut feeling trades, greed and fear trades at all cost. I will reward myself with a celebration with my son, my family and friends.



2.3 What Are My Weekly Trading Goals?

My weekly trading goal is to trade every week as the signals expose themselves according to the plan. I will check for the signals everyday and research the markets. This entails placing my stops instantly; sticking to my predefined risk and money management criteria; following my exit criteria and devoting most of my trading time to research for new trades and choosing only the very best setups. When I achieve this goal I will reward myself with a special drink.


2.4 What Are My Daily Trading Goals?

My daily trading goal is to trade according to my plan. Everyday I will check for my setup signal, if a signal is found I will trade with confidence, self discipline and adhere to my plan. I know my plan is details, specific, tested and profitable. I am confident that I will have the self discipline to adhere to it, which in turn will ensure that my weekly, monthly and annual goals are met.

3 Markets, Instruments and Time-frames

3.1 Which Markets Will You Trade?

I will trade the following index:
ftsee100 index because I can follow it and understand it.
I will also trade brent crude only when the reward to risk is extremely favourable.


3.2 Which Instrument Will You Trade?

I will initially restrict myself mostly to ftsee100 index as this is suitable for my small account size. It enables me to reduce my risk to an acceptable level.

I will occasionally trade brent crude in occasion where the reward to risk is extremely favourable and I am able to stay within the 5% risk limit. I will always put an stop loss when trading brent crude as this is a very volatile instrument.


3.3 Which Timeframes Will You Trade?

Position Trading
For position trading I will use weekly charts to determine the long term trend, use daily charts for my setups or signals. Use hourly charts for execution in the direction of the weekly trend.



Day Trading or Scalping

As for day trading or scalping I will use daily charts to determine the trends, one hour charts for setups and 15 minutes charts for executions.









4 Tools of the Trade

4.1 Which Financial Vehicle Will You Use To Trade?

My choice of financial vehicle is spreadbet as it takes very little to open an account; there are no taxes or execution fees involved.


4.2 Which Broker And Trading Platform Will You Use To Trade?

My choice of broker is cmcmarkets, as they use all the major national and international stocks and other instruments. They are very competitive and well known in the market place. Their data feed and customer service is very good. Also they provide mobile trading facility over mobile phones.

4.3 Which Software And Data Feed Will You Use To Trade?
I will use the software provided by cmcmarkets, which also provide the data feed. They are the leaders in their field and their software is easy to use and I am familiar with it.


















5 Before The Market Opens

5.1 What is your daily pre-market routine?
My daily pre-market routine comprises five key areas, namely:-
To analyse and log yesterdays trades.
To review any open positions and update targets and stops
To assess today’s market conditions and plan accordingly.
To plan the day ahead.
To make an initial selection of possible instruments to trade.

5.2 Have You Analysed Yesterdays Trade?
Each day I will ensure that the yesterday’s trades are analysed and logged and that my trading journal is up to date. Additionally, I will check to ensure that I do not fail to adhere to my trading plan; I will amend the new days trading activity in accordance with the discipline procedures detailed in the section 12 of my trading plan.


5.3 Have You Any Positions open?
If I have positions open in the market, I will update targets and stops and confirm that the reasons for entering the trade in the first place are still valid.


5.4 What Are The General Market Conditions?
Before trading, I will check the followings:
Indices to determine if they are flat, trading up or down or mixed. This will allow me to plan my next move.
To determine if any key economic reports or interest rate decisions are due to be released and what time.
To determine if any key personnel are due to make announcements or speeches and what time, such as the Fed chairman or governor of BOE or company CEO.

I aim to trade the trend that is produced by the reactions to these reports and speeches. Therefore, I will not trade an hour before the report or 30 minutes after the reports. This will help ensure that I trade what I see and not what I think I am seeing or what I want to see.

5.5 What Will You Do Today – Hour by Hour?
As a position or swing trader, I will take my signals from a daily chart; my timing will be done on hourly charts. I do not intend to be in front of a trading screen every moment.
If I do day trading then I will follow the market hour by hour. I will take regular breaks for lunch and tea.


5.6 Which Instruments Are On My Watch List?
I will visually check my instruments list (uk100) daily. I will use traditional bar charts and charting patterns as my primary tools, supplemented by MACD histogram and stochastic to look for trading signals.


6 Risk & Money Management

6.1 Risk Management
Risk management focuses on the steps necessary to minimise loses by assessing the market conditions, risk-reward probability and use of stop loss orders.
Money management focuses on the steps necessary to maximise profits by the use of trailing stops and adjusting position size.
Cut your losses short (that is risk management) and let your profits run (money management).


General Risk Management

6.2 What Is Your Attitude Towards Risk?
I am generally risk averse, but once in a while I get carried away and risk more than I should. I will minimise risk by strictly adhering to the risk management regime contained in this section of my trading plan.


6.3 What Is The Overall Market Risk?
My maximum exposure in the market will not exceed a combined total of 5% of my capital at any one time.


6.4 What Is The Broker And Hardware Risk?
My broker is cmc; if they go down I do not have a backup broker to hedge my positions.
If my hardware fails, I will use the mobile marketmaker on my phone or phone up to deal my positions.




6.5 What Is The Strategy Risk?
I will monitor the drawdown on all my trading strategies, in the event that this figure exceeds 30% I will stop trading immediately and review the whole approach.




Specific Risk Management

6.6 What Is The Probability Of A Successful Trade?
My setup is a clearly define in section 10 of my plan and I am familiar with it and I can spot it in real time instantly.

I do not know the exact probability of success ratio of my setup. I know it is more than 50% on the long run. I will do extensive forward testing using a small amount of real equity to find out what the success ratio is.

6.7 What Is The Risk-Reward Ratio?
I don’t know exactly in mathematical terms. Generally my risk will be less than my reward. I will only risk a defined percentage amount. I will follow the general trend to increase my reward related to risk.


6.8 What Is The Risk Per Trade?
I will not lose more than 5% of my equity on a given trade. Most of my trade will 3% stop loss.


6.9 Where Will You Place Your Stop Loss Orders?
For a directional medium term trade I will put the stop where I think if the market reaches then it would indicate that my direction is wrong.
For a scalp trade, I will make the stop tighter than 5%.


6.10 When Will You Stop Trading?

· Stop trading after reaching my target on short term trade.
· On long term trades, stop trading when my stop is hit.
· After I breakeven following a large drawdown when a market reaches a new high.








General Money Management
6.11 Large Drawdown And Profit – What Will You Do?
In the event of large drawdown I will credit additional funds to my account after I have identified the cause of the drawdown. Also go back to school to regain my self confidence.

When trading equity exceeds the amount I need to trade my strategies, I will take profit and do the things I always wanted to do, also I will give some to the poor and needy.


6.12 Which Money Management Approaches Will You Utilise?
As my account grows I will increase my position size to a maximum that I can handle psychologically, whilst remaining within the parameters of my risk management strategy.


Specific Money Management

6.13 Will You Lock In Profits?
I will utilise a trailing stop which I will initially set to breakeven, then lock into 50% profit in uptrend or down trend.

6.14 How Will You Determine Your Position Size?
On a short term time frame I will only use one contract or maximum number of contract feasible within 5% equity risk management. Therefore if a trade has 2% maximum equity risk, then I will consider trading 2 contracts, that way I will have a maximum equity risk of 4% and will optimise the potential returns.


On a swing trade or trend following trade I will start with one contact and add a contract each time a 200 point gain is accumulated in a clear and established trade.


7 Exit Strategy
Exit strategy is one of the most important aspects of trading as it limits your losses.


7.1 Losing Trades – Will You Exit Before Your Stop Is Hit?

If the trade goes against me, my exit strategy permits me to either let my stop get hit or if the condition becomes clear that the trend has changed and it’s clear from the charts then I will close it myself. However if the risk to the trade is low compared with potential gain, I will patiently wait for the trade to take it course, either the trade will reap good reward or I will lose very small amount.


7.2 Winning Trades – Which Signals Will See You Exit Completely?

I will close all my positions immediately in the following circumstances:
Broken even at new record high or low.
Trend changes in the 5 and 20 day moving average.
Change of direction of breakout from the established trend.



7.3 Winning Trades – Which Signals Will See You Close Half?

I will close half my positions after I have reached my target or when the MACD histogram begins to change direction on the weekly chart or there is a divergence between price and MACD or stochastic on daily charts.


7.4 Winning Trades – Which Signals Will See You Close The Remainder?

I will close out the second half of my position when the trailing stop is hit.






8 Trade Strategies, Setups & Entries
All strategies fall in to one of the three general groups: Breakout, retracement and reversals.
8.1 Which Strategy Will You Trade?
My primary strategy is a trend following strategy; trend defined in weekly, daily, four hourly and hourly bar charts. Use classical chart patterns in addition to MACD and stochastic.

My second strategy is for non-trending market, where the market moves in a range for a while.


8.2 What Are Your Setup?

My setup is based on the Triple Screen Trading system using bar charts and classical charting patterns to spot deviation from the weekly trend.

The setup for my primary strategy consists of the following elements for indices:
A) Determine the weekly longer term trend using the MACD histogram.
B) If the daily trend is counter to the weekly trend, it signals a trade.
C) Use one hourly chart to execute the trade in direction of the weekly trade.
D) Place the stop at yesterdays high in uptrend or yesterdays low in down trend.


My second trading strategy for range bound market consists of the following setup for indices:
A) Use Bollinger band and classical charts to identify a range bound market.
B) Use daily chart for trade signals, at high end of range sell, at low end buy.
C) Use one hourly chart to execute the trade.
D) Place the stop at recent highest and recent lowest for sell or buy respectively.

My strategy for brent crude trading is going to be based on swing trading. Brent crude tend to move in a certain direction on hourly chart by 100-200 points, then it slows down for hours and then reverses. This characteristic is most prevalent at the record high end of market price. My strategy at the market top is as follows:
After a large move, look for signs of price reversal in hourly chart.
A) When there is small volatility and price direction change it is a sign of price reversal.
B) Execute trade with a tight stop, risk no more than 5%.





Crude tend to drop by 10 to 15 dollars in seven to ten days period during a mini bear phase. The price moves in a downward channel clearly defined by classical chart. My strategy for trading at this phase is as follows:
A) Determine the classical chart channel trend.
B) Look for a breakout from the channel.
C) Put a limit buy 200 points above the price channel
D) Must put a stop loss order immediately within the 5% risk limit.



8.3 How Will You Find Your Setup?

I will find my setup by checking the charts daily in the morning and evening.






8.4 Which Signal Will Trigger Your Entry?

The entry trigger for my primary strategy is when the daily trend deviates from the weekly trend but the daily trend stays within the classical charting channel. The execution is carried out when the deviation begins to return to the daily trend channel.

The entry for my secondary strategy is to go long when the bottom of the range is reached and the price begins to reverse and go short when the top the channel is reached and the price begins to reverse.


For Brent crude at the market top, the signal is given by low volatility, price swing in hourly chart. Put a tight stop just below the low volatility price band.

After a large drop in price, use price breakout from a classical price channel to enter the market with a limit order. Put a stop loss order immediately below it within the 5% risk limit.


9 After The Market Closes
Examine all trades at the end of the day.

9.1 Have You Recorded Today’s Trades?
After the market close, I will:
A) Examine each trade and write down the following details –
· Entry
· Exit
· Stop Loss
· Target
· Duration of trade
· Reason for entering
· Reason for exit
· Loss or profit
· Lesson learnt

B) Keep all the details in a diary.

9.2 Did You Execute Your Trades Accordingly To Your Plan?

In addition to recording all my trades, I will check to confirm that all trades are executed in accordance with my plan. If they are not, I will assess to determine if the reason for failure to comply with the trading plan is due to an inherent fault within the trading plan or a discipline issue within me and the take action accordingly.


9.3 Have You Completed Your Trading Journal?

I regularly update my trading journal with my thoughts and feelings about each trade and my conclusions about the day as a whole.


10 Discipline

A trading plan counts for nothing if you lack the necessary discipline to implement it.

10.1 Back Test or Forward Test?

I have been trading for a while and I know that I did not take the trading signals that my Triple Screen Trading system dictated; as a result I am down in equity. However, if I were to take the signals without failure, I would have been profitable on the long run. I have a small amount of trading capital set aside just for educational purpose to hone my trading skills before I trade with large amount, this will also be part of the forward testing that I will do for my strategy.

10.2 What Are Your Promises To Yourself?

If I break one of the rules detailed in my trading plan I will stop trading for three days and focus on the reasons for the breach of discipline.

If I break one of the rules detailed in my trading plan I will stop trading for five days and focus on the reasons for the breach of discipline.


If I break one of the rules detailed in my trading plan I will stop trading for seven days and focus on the reasons for the breach of discipline.

10.3 What Questions Do You Ask After A Winning Trade?

After a winning trade I will:
A) Guard against over confidence and ensure that my attitude remains consistent.
B) Check to determine that I did everything as well as I could.
C) Remind myself that executing the trade in accordance with my plan is more important that the outcome of the trade,




10.4 What Questions Do You Ask After A Losing Trade?

After a losing trade I will:
A) Examine the trade and learn what I can from it.
B) Check to ensure that I executed all aspects of the trade in accordance with my plan.
C) Evaluate my state of mind to ensure that I am calm, relaxed and ready to enter the market again with an emotional free and professional attitude.


What Steps Do You Take To Learn More About Trading?

I will ensure that I read at least five trading related books and journals annually, taking special care to improve on trading psychology.


11 Ten Golden Trading Rules
11.1 What Are Your Top Ten Golden Trading Rules?

#1: Maintain psychological discipline with patient.
Follow the plan doggedly.

#2: Protect and preserve my capital.
Amateurs lose focus by thinking how much they can make, professionals focus on how much the potential loss can be incurred.

#3: Always set a stop loss, always!
Help to cut your losses quick.

#4: Cut the losses short and let your profits run!
Continually ask myself this question: “had I not entered this trade when I did, would I want to be in it now”? If the answer is NO, then exit immediately.

#5: Trade what you see – Not what you think you see!
The little voice inside my head “tells” me what the market is GOING to do next need to be ignored while trading. Listening to the voice in my head blinds me from what the charts, indicators and the price trend is telling. Concentrate on the NOW moment and trade what you see and not what you think you see.

#6: Never chase my losses. Ever!
Revenge trading and emotion based trading leads to disaster.

#7: Never average down. Ever!
This will blow my account.

#8: Keep excellent records!

#9: Keep it simple (KIS).
Many top professional traders use disarmingly (winning) simple strategies that are executed with bare minimum of indicators. Their focus is to maintain their self discipline and to trade accordingly to their plan. Make it easy on myself and keep everything as simple as possible.

#10: Plan the trade – Trade the plan!
Trading is a business so treat it as a business.