Thursday, 15 October 2009

Components of a trading plan

Next, what components of a trading plan do you need to be profitable?

Let’s start by looking at a local, ME a number of years ago. This was my daily routine. I came onto the floor early, at least 1 hour before the markets opened to prepare for the day.

• First I'd think about what happened the previous day- where we had traded, what the action was and where it was.
• Next, I looked at the overnight trading - what had happened in other similar markets in other parts of the world
• I then looked at whether any significant news was out that day,
• I began trading with this info and then watched carefully everything that happened in the pit – the brokers filling paper, the hand signals of clerks flashing orders into the pit

Now, let me translate that into modern electronic trading jargon.

• What sort of day was the previous day – trend, normal, range bound, what was the trend AND where was the support and resistance
• What happened in the news overnight that might affect the trend or the support and resistance. I now read all my news on line and look at the calendars to see what announcements are due during the day.
• What numbers – numbers are what locals call the government statistics that are announced - these may change the trend or day type during the day and when could they appear
• What was the order flow?

Order flow is exactly what it says on the box: the flow of orders from external parties into the pit. Relevant information is the balance – more buying or more selling, size and volume, commercial or retail (we knew which brokers represented which type of customer).

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