Suppose you cal ed your 401K manager this afternoon. Suppose you asked him “What is your
plan for the next six months?” Suppose he told you “Oh—whatever. I just try to get on the right
side and if I don’t I just get out”
How long would that guy be managing your retirement money if you had any say in the matter?
Many traders take the same attitude with their daily work habit and many don’t even know they
do it. Not having a clear and concise plan for your daily trading presence is a serious mistake
and you need to address it. The best way to describe a sound plan is to let you read one from a
professional ful -time trader. This is an actual trade plan form a friend of mine who is an E-mini trader:
My goal is to earn 100% on my trading equity before the end of the year. To maintain my focus I wil set a near term goal every quarter to be at a 25% gain and I wil plot my equity daily. If I reach my quarterly goal ahead of the last trading day of the quarter I wil take a two-day break. I wil hold any open positions that are at a profit but any open trade losses I wil close at that point before I take a break.
If my open trade gains continue into the new quarter I wil add to those winning positions by a factor of 25%. I wil move my protective stops up to reduce my exposure on the entire position.
If I am behind on my trade goal for the quarter, I wil take a five-day break. I wil re-evaluate my trade system and ask the question: “Has my market quality changed to something my system is not able to perform at best?”
During the year I wil not trade more than three markets. I have learned I cannot focus wel on more than three markets at a time. If I have more than four losing trades in a row in any of my three markets I wil take a trading break for five days. Again, I wil leave open position winners alone in the other markets but close al losing positions. I wil again rol protective stops to reduce my risk.
When I take a trading break, I wil enter resting limit orders in the open trade winners to take the objective profit should I be unavailable and the market gets to those levels during my break. If I am ahead of my plan for the year at any point I wil take a break. I wil take 30% of the new equity out of my account and place that into a secure place. If I am behind I wil not add equity under any circumstances. If I reach a 40% drawdown from my high equity I wil quit for the year.
I wil record my daily trade activity in my trading log and review this weekly. I wil know my ratios and results; I wil look to improve them by 5% each week. I wil trade only from the bul side because my analysis tel s me that al three of the markets I have selected have more than a year of solid bul ish fundamentals. I wil learn how to use options this year because I see from last year I could have protected more trades if I had a solid grasp of when to use options and when not to. I wil invest two-hours a week on option knowledge.
My son is leaving for Europe in May. I wil not trade the week before he leaves or the week after. I plan to join him in the fal for Oktoberfest for one week and wil not trade the three days before I leave or when I get back. I know I suffer from jet-lag so the week after I am back I am not at my best. I have blocked out these times on my trade calendar so I wil not be tempted to trade anyway.
If you read between the lines you will notice that his trade plan included al the things that were in his control—NOT things outside of his control; like the markets. If you want to get serious about writing a solid trading plan pick up a copy of my first book Trading Rules That Work: the 28 essential lessons every trader must master (Wiley & Sons Publishing, October 2006). I also teach about trading plans in my daily broadcasts and in my Psychology of Trading course.
Please see my website for details.
HOW TO MAKE THIS MISTAKE WORSE:
Base your trading plan on hypothetical profits or on
how wel you did paper-trading, Ignore your personal emotional needs when compiling a plan,
Ignore your family while making a plan, keep thinking you can trade everyday or al the time,
average your potential over a period of time and think results will equal a daily amount.
SOLUTION:
Ask a professional trader to show you his daily/weekly/monthly or annual trading
plan. Ask yourself if you can make a plan that addresses similar things. If the professional you
have selected can’t show you or won’t show you his plan then ignore what he has to say. If he
isn’t using a plan then he is likely unable to assist you in building wealth. There are resources for writing trade plans on my site; please use them.