Thursday, 15 October 2009

A Trading Plan needs to be KISSable (keep it simple st**id)

Trading Plans should be simple and provide principles for:
• Setups
• Entry Trigger
• Trade Management (sizing, risk, exits)

Note that I have said “principles”. Without methodology, there is no trading plan. You need to identify your “edge” (edge is the reason you are confident to buy when the seller sells and be able to repeat your trades and measure their results.

An example of a trading plan set out in clear and easy to understand terms:
1. I will trade the emini S&P
2. I will note every trade and why I entered and exited
3. I will only enter trades at Support and Resistance areas
4. To enter a trade, the following conditions must be met
a. Price is in a support/resistance area
b. If it is a Trend trade then I am entering with the trend
c. If it is a counter trend trade then I am far enough from Value to make a multiple of my risk when the price goes back to Value
d. Momentum is with my trade
e. Order flow to be in my direction
5. Absolute Stop Loss per contract will be 9 ticks but I will not wait to be stopped out if I determine that the trade is a loser.
6. Trade size is in multiple of 3 contracts, all entered at the same time
7. When setup conditions have been met, my entry trigger is alignment of all requirements
8. I will scale out of trades by thirds
a. 1/3 @ 1st support/resistance
b. 1/3 @ 2nd support/resistance
c. 1/3 @ 3rd support/resistance
My scales will be at logical support and resistance areas.

Money Management is the basis of profitability. We will talk a lot about that later.

1 comment:

  1. what does c. mean? "multiple of risk", would that be risk/reward 1:2?

    thanx, btw, for a great blog.